Shares of Germany's largest bank Deutsche Bank plunged on Friday as investors fretted that regulators and central banks have yet to contain the worst shock to the sector since the 2008 global financial crisis.

Wider indicators of financial market stress were also flashing, with the euro falling against the dollar, euro zone government bond yields sinking and the costs of insuring against bank defaults surging despite assurances from policymakers that the global banking system is safe.

In the latest effort to reassure investors, the U.S. Treasury said the Financial Stability Oversight Council - which comprises the heads of various U.S. regulators - agreed at a Friday meeting that the U.S. banking system is "sound and resilient."

The meeting was chaired by U.S. Treasury Secretary Janet Yellen, whose comments are being closely watched by markets for an indication of how far authorities are willing to go to shore up the banking sector after the collapse of Silicon Valley Bank and Signature Bank (SBNY.O) earlier this month.

Earlier in the day, Germany's Deutsche Bank (DBKGn.DE) was thrust into the investor spotlight and slumped 8.5% alongside a sharp jump in the cost of insuring its bonds against the risk of default. The index of top European bank shares (.SX7P) ended down 3.8%.

"The market is suspicious, or weary is maybe a better way to put it, that there are more problems out there that have come forth," said Joseph Trevisani, senior analyst at FXstreet.com.

"It takes time. It's going to have to be weeks without any problems in the banking system before markets will be convinced that it's not a systemic problem."

Banking analysts stressed the difference between Credit Suisse AG (CSGN.S) - which needed a rescue by bigger Swiss peer UBS AG - and Deutsche Bank, saying the German bank boasted strong fundamentals and profitability.

The research firm Autonomous said it was "crystal clear" Deutsche is "NOT the next Credit Suisse," while JPMorgan analysts wrote "we are not concerned" and that Deutsche's fundamentals were "solid".

Paul van der Westhuizen, senior strategist at Rabobank, cited Deutsche's profitability as the "fundamental difference" between the two European banks, given Credit Suisse did not have a profitable outlook for 2023.

"It's a very profitable bank. There's no reason to worry," German Chancellor Olaf Scholz also said.

Still, shares in Germany's largest bank have lost a fifth of their value so far this month and the cost of its five-year credit default swaps (CDS) - a form of insurance for bondholders - jumped to a four-year high on Friday, based on data from S&P Market Intelligence.

Short sellers have made a profit of over $100 million on paper betting against Deutsche Bank stock over the last two weeks, financial data company Ortex said on Friday.

Deutsche Bank declined to comment.

Worries in Europe spilled over to the United States before some bank stocks bounced back. JPMorgan Chase & Co (JPM.N) ended down 1.5%, while Bank of America (BAC.N) climbed 0.6%.

The S&P 500 regional banks index (.SPLRCBNKS) recovered 1.75%, with PacWest Bancorp rallying more than 3% and First Republic Bank (FRC.N) falling 1.4%.

European banks' Additional Tier 1 (AT1) debt - a $275 billion market of bonds that can be written off during rescues to prevent the costs of bailouts falling onto taxpayers - also came under further selling pressure.

As part of the deal with UBS, the Swiss regulator determined that Credit Suisse's AT1 bonds with a notional value of $17 billion would be wiped out, stunning global credit markets.

Although authorities in Europe and Asia have said this week they would continue to impose losses on shareholders before bondholders, unease has lingered.

"The developments in the AT1 market mean that most European banks are incentivized at this point to issue common equity, which is diluting for shareholders and also the reason why banking stocks are being reset lower," said Peter Garnry, head of equity strategy at Saxo Bank.

In a bid to show it has ample capital while keeping funding costs in check, Italy's UniCredit (CRDI.MI) is leaning towards repaying a perpetual bond at the earliest opportunity in June, a source close to the matter told Reuters. A spokesperson for UniCredit declined to comment.

Amid the market volatility, European policymakers voiced support for their continent's banks, with Germany's Scholz, French President Emmanuel Macron and European Central Bank chief Christine Lagarde all saying the system was stable.

Policymakers have stressed the turmoil is different from the global financial crisis 15 years ago, saying banks are better capitalised and funds more easily available.

But the worries spread quickly, and on Sunday UBS (UBSG.S) was rushed into taking over Credit Suisse after its Swiss rival lost the confidence of investors.

Brokerage group Jefferies said the deal would change an equity story for UBS which was based on a lower risk profile, organic growth and high capital returns.

"All these elements, which is what UBS shareholders bought into, are gone, likely for years," it said.

Rivian Automotive Inc (RIVN.O) is relocating parts of its manufacturing engineering team to Illinois to speed up production, the Wall Street Journal reported on Friday, citing a person familiar with the matter.

The reorganization, expected to be announced soon, would mean those working on manufacturing engineering would be asked to relocate to central Illinois or its headquarters in Irvine, California, according to the WSJ report.

"In terms of ramping production, it's helpful to have the manufacturing and engineering teams closer to our facilities in Normal as well as our headquarters in Irvine," a Rivian spokesperson told Reuters, but declined to confirm if the company was relocating teams.

Rivian, which makes R1T electric pickup trucks and R1S SUVs at its factory in Normal, Illinois, in February forecast 2023 production below analysts' expectations as it grapples with lingering supply chain snarls.

The electric-vehicle maker has been losing money on every vehicle it builds, and narrowly missed its annual production target of 25,000 units last year.

Investors have been unnerved by weakening demand for EVs as interest rate hikes and fears of a looming recession creep in.

Coinbase (COIN.O) debuted on the U.S. stock market on April 14, 2021 - the same day U.S. senators confirmed Gary Gensler to lead the Securities and Exchange Commission (SEC), the country's top markets regulator.

Gensler, who has called the crypto sector a "Wild West" riddled with fraud, is now embroiled in a battle with the world's largest publicly-traded crypto firm over a core debate: whether digital assets are investment contracts akin to stocks or bonds that should be regulated by the SEC.

Friction between crypto proponents and the regulator have been brewing under Gensler's leadership, with both sides growing increasingly loud in their criticisms.

The escalating tension exploded into public view on Wednesday when Coinbase CEO Brian Armstrong and the company's chief legal officer Paul Grewal posted online that the firm had been told that SEC staff intend to recommend enforcement action, adding that Coinbase was willing to fight it in court.

Coinbase shares have tumbled 12% since Wednesday's disclosure.

SEC and Coinbase spokespeople declined to comment. For months, the two have been in discussions over regulation and the agency's investigation into Coinbase, according to two sources.

In July, the firm disclosed an SEC probe into its asset listing processes, staking programs and yield-generating products.

Discussions between the SEC and Coinbase broke down in recent weeks, with one source saying the two sides had moved "further apart." The SEC appears to be going after Coinbase's entire business as operating outside of U.S. laws, the source said.

The crypto industry believes it operates in a regulatory gray area not governed by existing U.S. securities laws - and that new legislation is needed to regulate the industry.

"We continue to think rulemaking and legislation are better tools for defining the law for our industry than enforcement actions," Coinbase's Grewal said on Wednesday. "But if necessary, we welcome the opportunity for Coinbase and the broader crypto community to get clarity in court."

Prior to Gensler's arrival, the SEC engaged in targeted enforcement, but the Democratic chair has ratcheted up focus on crypto platforms themselves. The SEC's crackdown on crypto gathered pace after November's collapse of Sam Bankman-Fried's FTX exchange.

Gensler has raised questions over whether crypto firms rely on a business model that is fundamentally non-compliant with the law, adding that crypto intermediaries provide a range of functions, such as operating as an exchange, broker-dealer, clearing agent and custodian, that should be regulated by the SEC.

"This is probably existential for Coinbase," said Joshua White, a finance professor at Vanderbilt University. "It’s perhaps existential for the industry, at least in the U.S."

The SEC on Thursday issued an investor alert warning that firms offering crypto asset securities may not be complying with U.S. laws.

Kristin Smith, the CEO of the Blockchain Association, voiced the crypto industry association's support for Coinbase, noting: "The SEC doesn't make the law – it only makes allegations, which ultimately must be tested in the courts."

The SEC has gone to court against many crypto firms, including a case against San Francisco-based crypto and cross-border payments company Ripple Labs Inc that some say could offer clarity on when a digital asset is considered a security.

But the SEC and Coinbase debate over an "unspecified portion" of its listed digital assets sets the stage for a more expansive and potentially defining courtroom battle. Coinbase's website lists over 150 crypto assets for trading.

Coinbase flagged potential regulatory risks when it filed to go public in 2021, and noted on Wednesday that its staking and exchange services are "largely unchanged" since then.

"There couldn't be a more significant development for crypto markets and crypto investors," said Philip Moustakis, former SEC enforcement lawyer and partner with Seward & Kissel LLP in New York.

The Group of Creditors of Ukraine (GCU) body said on Friday that it had provided financing assurances to support the International Monetary Fund's (IMF) approval for an upper credit tranche programme to help restore Ukraine's economy.

The Group of Creditors of Ukraine includes Canada, France, Germany, Japan, Britain and the United States.

"Germany stands firmly by Ukraine's side and supports it to the best of its ability in its fight for our common values of freedom and democracy. That is why Germany is committed to providing financial support bilaterally and in various multilateral forums," a German finance ministry spokesperson said in a written statement.

This included extending the existing debt moratorium until 2027 and suspending interest and repayment burdens, the spokesperson said. The group agreed to conduct a debt restructuring in a later phase to restore the country's debt sustainability, it added.

An executive who also serves on the board overseeing the New York Federal Reserve warned on Twitter of potentially systemic problems in the real estate finance market and called on the industry to work with authorities to avoid things getting out of hand.

Noting there is $1.5 trillion in commercial real estate debt set to mature in the next three years, Scott Rechler, who is CEO of RXR, a large property manager and developer, tweeted: “The bulk of this debt was financed when base interest rates were near zero. This debt needs to be refinanced in an environment where rates are higher, values are lower, & in a market with less liquidity.”

Rechler said he’s joined with the Real Estate Roundtable “in calling for a program that provides lenders the leeway and the flexibility from regulators to work with borrowers to develop responsible, constructive refinancing plans.”

"If we fail to act, we risk a systemic crisis with our banking system & particularly the regional banks” which make up over three quarters of real estate lending, which will in turn put pressure on local governments that depend on property taxes to fund their operations, Rechler wrote.

The executive weighed in amid broad concern in markets that aggressive Fed rate hikes aimed at lowering high inflation will also break something in the financial sector, as collateral damage to the core monetary policy mission.

The Fed nearly held off on raising its short-term rate target on Wednesday after the collapse of Silicon Valley Bank and Signature Bank rattled markets. The failure of Silicon Valley Bank was linked to the firm's trouble in managing its holdings as markets repriced to deal with higher Fed short-term interest rates.

The real-estate sector has also been hard hit by Fed rate rises and commercial real estate has also been hobbled by the shift away from in-office work during the pandemic.

Also weighing in via Twitter, the former leader of the Boston Fed, Eric Rosengren, offered a warning on real estate risks, echoing a long-held concern of his dating back a number of years.

Pointing to big declines in real estate investment indexes, he said "many bank lenders will be pulling back just as leases roll, with high office vacancies and high interest rates. Regional bank shock and troubled offices will be negatively reinforcing."

Real estate woes are on the Fed's radar, but leaders believe banks can navigate the challenges.

Speaking at a press conference Wednesday following the Fed’s quarter percentage point rate rise, central bank leader Jerome Powell said “we're well-aware of the concentrations people have in commercial real estate,” while adding “the banking system is strong, it is sound, it is resilient, it's well-capitalized,” which he said should limit other financial firms from hitting the trouble that felled SVB.

Rechler serves as what’s called a Class B director on the 12-person panel of private citizens who oversee the New York Fed. That class of director is elected by the private banks of the respective regional Feds to represent the interest of the public. Each of the quasi-private regional Fed banks are also operated under the oversight of the Fed’s Board of Governors in Washington, which is explicitly part of the government.

The boards overseeing each of the regional Fed banks are made up of a mix of bankers, business and non-profit leaders. These boards provide advice in running large organizations and local economic intelligence. Their most visible role is helping regional Fed banks find new presidents, although bankers who serve as directors are by law not part of this process.

Central bank rules say that directors are not involved in bank oversight and regulation activities, which are controlled by the Fed in Washington.

Partisan sniping over raising U.S. borrowing authority ratcheted up on Friday when House of Representatives Speaker Kevin McCarthy accused President Joe Biden of ignoring the issue, even as Republicans have failed to detail budget cuts they want before allowing a debt limit increase.

At a news conference in the U.S. Capitol, the Republican speaker attacked the Democratic president for not holding negotiating sessions with him since an initial meeting early last month.

"Unfortunately the president doesn't think it's important," McCarthy said when asked about how talks on the debt ceiling were going.

The government faces a historic default on its debts without legislation to raise the $31.4 trillion debt limit.

Biden and leading Democrats in Congress have urged McCarthy to unveil Republicans' plans for cutting spending, saying that additional meetings before that happens would be fruitless.

"House Republicans have long called producing a budget a basic function of government, even suggesting that if members of Congress don’t pass a budget, they shouldn’t get a paycheck," Andrew Bates, deputy White House press secretary, said in an email.

"President Biden has produced a detailed budget that reduces the deficit by $3 trillion over the next decade while continuing to invest in America, and House Republicans should do the same so everybody can truly see how the numbers add up."

Senate Majority Leader Chuck Schumer told reporters on Thursday that Democrats welcome budget talks anytime. But McCarthy "has got to show us his plan. To just sit down and not have a plan, what's the point? What are you going to say, 'Thanks for the coffee?'"

The House Budget Committee, which is controlled by Republicans, has not yet produced a fiscal 2024 budget blueprint to shape the debate over federal spending beginning in October and the need to raise the debt limit.

Meantime, Republicans want Democrats to signal support for significant spending cuts before providing the votes needed in Congress to increase the Treasury Department's borrowing authority.

The non-partisan Congressional Budget Office has estimated the Treasury Department will exhaust "extraordinary measures," which are keeping debt payments on schedule, sometime in the July-September time frame.

Earlier on Friday, the White House issued a statement accusing the hard-right House Freedom Caucus of proposing "devastating cuts" to the federal budget that it said would weaken national security while saddling working- and middle-class families with higher costs.

Their plan would reset non-defense spending to pre-COVID-19 pandemic levels and eliminate multiple Biden programs.

Venezuela's need for dollars to shore up its exchange rate and enable government largesse ahead of 2024 elections is among the motives for a crackdown on alleged corruption at state oil company PDVSA, four sources with knowledge of the matter said.

The arrests this week of more than 20 PDVSA officials prompted former oil minister Tareck El Aissami, long prominent in the government of President Nicolas Maduro, to resign. He was replaced by Pedro Rafael Tellechea, who had been named to head PDVSA in January.

Maduro said that his government was committed to "going to the root" of corruption, calling the probe which began last year "professional, scientific and disciplined." His administration has provided scant further details of the alleged wrongdoing.

Three of the sources said the arrests of the PDVSA officials were linked to an investigation into heavy losses the company suffered last year, as tankers left the country carrying cargoes that had not been fully paid for.

PDVSA has accumulated $21.2 billion in unpaid bills, according to documents seen by Reuters, after turning to dozens of little-known intermediaries to export its oil under U.S. sanctions.

Those pending payments are a sore spot for the government as it gears up for next year's presidential elections, which traditionally see a jump in public spending, the sources said. The government has said it expects oil exports to finance 63% of its national budget in 2023.

"The money is what's important, the money is the central point of this mess," said a political source. "If you don't have money what do you do? Invent votes."

The Finance Ministry, the central bank, and PDVSA did not respond to requests for comment.

Nearly all of PDVSA's commercial crude and fuel exports have been halted amid a review of contracts, part of an audit begun by Tellechea after taking the helm.

It is unclear whether the corruption probe and contract review will concretely improve PDVSA's cash flows in the near future.

But it has come at a time when Maduro's government faces pressure to raise public sector pay, which has held steady for a year even as prices for food and public services have shot up.

Maduro increased the monthly minimum wage by 58% in March 2018, two months ahead of the last presidential contest, whose results are contested.

Maduro relaxed currency controls in 2019, allowing a de facto dollarization. In a bid to combat rampant inflation the government later used dollar injections to stabilize the exchange rate, along with public spending cuts and other measures.

Cash flows from PDVSA to the central bank, which injects dollars into the economy, have been intermittent in recent months, said three of the sources, who have knowledge of finance and ruling party economic strategies.

Consumer price increases fell to single digits for about a year, but annualized inflation surged back to 537% in February, according to the non-governmental Venezuelan Observatory of Finances. Falling dollar cash flows have led to a sharper depreciation of the bolivar currency since late last year.

"The (government's) exchange strategy will remain the same in the coming months," said one of the sources, adding the government will need more foreign cash to keep up injections of dollars, which local companies need to pay providers and for imports.

The central bank had just $420 million to offer to banks between the start of 2023 and mid-March, according to estimates from economic firm Sintesis Financiera.

During all of 2022, it had tripled dollar injections to $3.7 billion.

Some $3.6 billion of PDVSA's pending payments may be unrecoverable, Reuters reporting showed, because they are tied to tankers that left the country without prepaying at least a portion of the cargoes' value.

PDVSA last year delayed cash payments in dollars to several of its suppliers because of dwindling income.

Bank of America Corp (BAC.N) is redeploying employees in wealth management and lending to other roles within the company, a source familiar with the matter said on Friday, as higher interest rates continue to weigh on the businesses.

Less than 200 employees are being moved to product specialist positions within the company's global operations organization, the source told Reuters.

"As our business and client needs grow and evolve, our focus continues to be on aligning our team to areas of greatest need. Based on current market conditions, we are re-aligning talent to support these areas," a Bank of America spokesperson said.

The news was first reported by Bloomberg on Friday.

The move highlights the broader weakness in Wall Street banks' mortgage and wealth management businesses in a rising interest rate environment.

Interest rate hikes by global central banks to tame elevated levels of inflation have weighed on consumer and corporate spending, affecting the outlook for Wall Street heavyweights such as Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N).

Wells Fargo & Co (WFC.N) slashed hundreds of jobs in its mortgage business across the U.S., Bloomberg News reported in December.

• UniCredit put in request to regulators to repay AT1 - source
• Credit Suisse wipeout has sent yields soaring in AT1 market
• Supervisory source says good for banks that can to repay

UniCredit is leaning towards repaying a perpetual bond at the earliest opportunity in June, a source close to the matter told Reuters, a move that would show it has ample capital and help keep funding costs in check as markets reel from a crisis of confidence.

UniCredit (CRDI.MI) put in a request in recent weeks with European Central Bank supervisors to repay a 1.25 billion euro ($1.34 billion) 6.625% perpetual bond on June 3, the first chance it has to redeem it, the source said.

The bond reversed earlier losses to hit a session high after Reuters reported the request.

While UniCredit has signalled its intention to make use of an option to call the bond, it has until early May to make a final decision.

A supervisory source told Reuters that redeeming AT1 bonds is a good way to instil confidence in markets if banks have enough capital, which the source said is the case for UniCredit.

A spokesperson for UniCredit declined to comment. The European Central Bank declined to comment.

AT1 bonds are the riskiest type of debt banks can issue, ranking immediately after equity in the event of losses.

That hierarchy was overturned by Swiss regulators who wiped out $17 billion of Credit Suisse's (CSGN.S) AT1 debt under its takeover by UBS (UBSG.S).

The decision has disrupted the $275 billion AT1 bond market, which had already seen yields rise in the wake of recent U.S. banking failures.

Investors have priced in the risk banks will stop redeeming these perpetual bonds when they have an option to do so - which is standard market practice - given the cost of replacing them with new issues.

Yields have soared in particular on the bonds with a call date in the near future.

European rules require lenders to put in a request to supervisors to call an AT1 bond at least three months before the notice date.

If UniCredit's bond is not repaid in June the coupon will reset at 638.7 basis points above the five-year mid-swap rate , meaning the rate would rise above 9%.

With 220 billion euros in liquid assets immediately available, well above its entire wholesale funding maturing within a year, UniCredit has flagged it might issue at most 1 billion euros in AT1 bonds in the course of 2023 depending on market conditions and balance sheet needs, afixed income presentation showed.

The bank's 'CET1' core capital ratio - a key measure of financial strength - was 16% at the end of 2022.

Even taking into account a large planned capital distribution through dividends and share buybacks, the CET1 ratio would stand at 14.9%, versus UniCredit's own target of 12.5%-13% and a regulatory threshold of 9.2%.

AT1 bonds emerged in the wake of the global financial crisis as a way to build up bank capital and absorb losses. If a bank's capital ratio falls below a certain level, the bonds convert into equity or are written down.

Bank shares and bonds fell sharply again on Friday on worries that regulators and central banks have yet to contain the sector's worst shock since the 2008 crisis.

($1 = 0.9295 euros)

Small U.S. lenders that have outsized exposure to office loans could become the next group to face strains after bank failures roiled financial markets this month, according to analysts.

Rising interest rates, a slowdown in the commercial real estate (CRE) market and the proliferation of remote work pose challenges for smaller firms that made risky loans to finance office buildings, the analysts said.

For banks with assets between $1 billion to $10 billion, CRE loans comprised about 33% of the total held on their books, according to estimates by ratings agency Fitch. At the end of last year, CRE only made up about 6% of loans held by larger banks that had total assets of more than $250 billion, it said.

Goldman Sachs economists estimate the combined share of small and mid-sized banks, including lenders with less than $250 billion in assets, is 80% of the overall stock of commercial mortgage loans, it said in a note.

Both Goldman and Fitch did not specify which small lenders were most vulnerable.

Julie Solar, a credit officer at Fitch Ratings, said the office sector faces asset quality deterioration, putting smaller banks at risk due their relatively larger exposure as a percentage of their assets.

"Banks will be primarily exposed to CRE through bank loans on the balance sheet," she said. The total exposure of the U.S. banking system to CRE loans was $2.5 trillion at the end of December, Fitch said.

CRE leases tend to be long-term, which give lenders time to deal with any potential problem loans, but a wall of maturities are due for both loans and commercial-backed mortgage securities in coming months, investors and analysts said.

"Coupled with higher funding costs, elevated funding needs, and tighter lending standards, this implies a challenging fundamental backdrop in upcoming months," Vinay Viswanathan, an analyst at Goldman Sachs Group Inc (GS.N) wrote in a note.

The S&P 1500 Regional bank index (.SPCOMBNKS) is down 30% month to date.

The CRE market faces headwinds that could hobble small banks. After the global pandemic sent droves of employees to work from home, many have returned on hybrid arrangements or not at all, spurring vacancies in office buildings.

Rising interest rates have also depressed demand for CRE loans, while weighing on real estate investment trusts (REITs).

Goldman's Viswanathan cited several indicators that reflected a weakening market for office real estate: declining occupancy rates, falling appraisal values and rising defaults.

Last month, a subsidiary of asset manager Brookfield Corp defaulted on loans linked to two buildings in Los Angeles, according to a regulatory filing.

More cautious underwriting will probably lead to a further slowdown in real estate markets, Wells Fargo & Co (WFC.N) analysts wrote, citing Federal Reserve data that showed tightening lending standards for CRE in the first quarter.

CRE borrowers are grappling with higher costs for refinancing and hedging at a time where it's also getting more expensive to pay back their debts, said Viswanathan at Goldman.

Declining occupancy rates will probably force office landlords to cut rents for tenants who are also seeking less space as they negotiate new leases, he said.

Morgan Stanley expressed a more bleak outlook for CRE lenders this week.

"Don't roll the riskiest loans when they come due," Morgan Stanley analysts led by Betsy Graseck wrote in a note. "Banks should tread carefully as they can be left with the keys" of properties they don't want.

Big cities will bear the brunt of the CRE woes.

"You’re looking at the larger metro areas - LA (Los Angeles), New York, Chicago - where there is an abundance of office space that is now being severely challenged,” said Michael Donelan, senior managing director and portfolio manager at SLC Management.

CRE "is the next shoe to drop," said Edward Campbell, co-head of the multi-asset team at PGIM Quantitative Solutions, a unit of insurer Prudential Financial Inc (PRU.N).

"The smaller banks are especially vulnerable," he said.

Financial markets have been thrown a fresh curve ball by the decision to write down 16 billion Swiss francs ($17.5 billion) of Credit Suisse bonds, known as Additional Tier 1 or AT1 debt, to zero as part of a forced rescue merger with UBS (UBSG.S).

Under the deal, holders of Credit Suisse AT1 bonds will get nothing, while shareholders, who usually rank below bondholders in terms of who gets paid when a bank or company collapses, will receive $3.23 billion.

The news has hurt AT1 bonds issued by other European banks and they came under fresh selling pressure on Friday.

Here are some of the implications of the Credit Suisse AT1 bond write-down.

AT1 bonds - a $275 billion sector also known as "contingent convertibles" or "CoCo" bonds - act as shock absorbers if a bank's capital levels fall below a certain threshold. They can be converted into equity or written off.

They make up part of the capital cushion that regulators require banks to hold to provide support in times of market turmoil.

They are the riskiest type of bond a bank can issue and so carry a higher coupon.

If AT1s are converted into equity, this supports a bank's balance sheet and helps it to stay afloat. They also pave the way for a "bail-in", or a way for banks to transfer risks to investors and away from taxpayers if they get into trouble.

AT1s rank higher than shares in the capital structure of a bank. If a bank runs into trouble, bondholders will rank above shareholders in terms of getting their money back.

In Switzerland, the bonds' terms state, however, that in a restructuring, the financial watchdog is under no obligation to adhere to the traditional capital structure, which is how bondholders lost out in the Credit Suisse situation.

Credit Suisse AT1 holders, therefore, are the only ones not to receive any kind of compensation. Under the rescue deal, they rank lower than shareholders in the bank, who can at least get UBS' takeover price of 0.76 Swiss francs ($0.8191) per share.

European regulators said on Monday they would continue to impose losses on shareholders before bondholders.

Separately, the Bank of England also said that Britain had a clear statutory order in which shareholders and creditors of failed banks bear losses, with AT1 instruments ranking ahead of other equity instruments and behind tier two bonds in the hierarchy.

Hong Kong and Singapore's central banks said on Wednesday they would stick to the traditional hierarchy of creditor claims if a bank was to collapse in their jurisdictions.

It is not the first time that the treatment of AT1 bonds in a bank overhaul has caused controversy. A dispute over the write-off of around $1 billion of AT1 bonds issued by India's Yes Bank (YESB.NS) in March 2020 after the Reserve Bank of India initiated a restructuring of the lender is currently subject to court proceedings.

Fixed income investors were shocked by the write down of Credit Suisse's AT1 debt to zero.

One bank adviser and a bond investor said the Swiss government's actions were legal since the type of AT1 bonds issued by Credit Suisse could be subject to a complete write- down.

But the price of other banks' AT1 bonds have dropped as investors have panicked, fearing their bonds, which were meant to provide more protection than shares, could face the same fate.

Credit Suisse's AT1 bondholders are seeking legal advice.

The decision to write down Credit Suisse AT1 bonds to zero is viewed as negative for the AT1 bond market globally.

Standard Charted (STAN.L) Chief Executive Bill Winters said the move had "profound" implications for global bank regulations.

Analysts reckon investors will be much more cautious about buying AT1 bonds in the future, making it tougher for banks which need to raise money in bond markets to meet regulatory requirements.

Bid prices on AT1 bonds from banks, including Deutsche Bank, HSBC, UBS and BNP Paribas dropped this week, sending yields sharply higher, data from Tradeweb showed.

Germany's Deutsche Pfandbriefbank (PBBG.DE) said it will not redeem its 300 million euro AT1 bond when a call option expires on April 28, while Aareal Bank (ARLG.DE) said it was unlikely to call its bond although a final decision had not yet been taken.

• Deal on capital markets emissions accounting delayed
• Some reluctant to book 100% emissions linked to deals
• Hard to track banks' climate progress without accord

Banks are divided over how to account for carbon emissions linked to their capital markets business, sources told Reuters, with some riled by a proposal that 100% would be attributed to them rather than to investors who buy the financial instruments.

An industry-wide methodology was due to be announced in late 2022, but four sources with direct knowledge of the process said this has been stalled by the row over how much of the carbon emissions associated with a deal should be booked by each bank.

Reaching an agreement is seen as a crucial step for the financial industry as pressure grows on it to do more to help with the transition to net-zero, with a study by United Nations scientists this week urging a rapid phasing out of fossil fuels.

Without a methodology in place, investors are being hampered in tracking the carbon footprint of individual banks, which is an increasingly important part of their shareholder remit.

Most banks are yet to reflect the emissions associated with the deals they do, which are known as "facilitated emissions", in their targets, making it hard to track their progress towards pledges to reach net-zero emissions by 2050.

At present, many banks' pledges to reduce emissions refer solely to their financed emissions.

But between 2016 and 2021, 57% of the financing provided by Europe's largest 25 banks to the top 50 companies expanding oil and gas production was through capital markets underwriting, according to ShareAction, a responsible investment NGO.

"Facilitated emissions is the way some of the heaviest emitting sectors are financing their operations, and while banks don't have as much influence as they do over lending, they still have influence," said Dan Saccardi at Ceres, a non-profit organisation focused on sustainable capital markets.

Morgan Stanley, Barclays, Citigroup, Standard Chartered, HSBC and Britain's NatWest are among the members of a working group discussing the next steps as part of the industry-led Partnership for Carbon Accounting Financials (PCAF).

NatWest, supported by climate activist groups, is happy with 100% of facilitated emissions being attributed to the banks behind capital markets deals.

The bank says an alternative proposal of 17% derived from the Basel Committee on Banking Supervision's methodology for assessing Global Systemically Important Banks is problematic.

Tonia Plakhotniuk, NatWest Markets' Vice President, Climate & ESG Capital Markets, said that 17% risked "a mismatch" because investors would not account for the remainder themselves.

It is a "very subjective assessment to measure the role of an underwriter," she said, adding that "more outreach, research or analysis" was needed to reach an agreement.

Those favouring a lower share argue that unlike corporate loans, a bond or equity sale is a single transaction and banks have less leverage to get clients to change their behaviour.

"100% is clearly too high. We will have to meet somewhere in the middle but I don't know where," an executive at a major bank involved in the talks told Reuters.

Evan Bruner, a spokesperson for PCAF, said the group continued "to work toward a final method" but did not have any updates on progress.

A few banks have begun using their own methodology.

This includes Barclays, which apportions 33% of the capital markets financing to the bank and the rest to investors.

Barclays did not respond to a request for comment.

Other banks on the working group either declined to comment or did not respond to requests for comment.

Until banks agree on a compromise, experts say lenders could look to book more business as capital markets rather than loans.

"Accounting standards need to make sure that across a bank's products we are measuring emissions, and that there is no accounting arbitrage," said Simon Connell of consultancy Baringa and former sustainability strategy head at Standard Chartered.

The Basel Committee's methodology for assessing Global Systemically Important Banks considers direct lending to be six times more important in its impact on the financial system than capital markets underwriting.

PCAF uses that in its formula to reach the 17% option.

Scores of foreign investors are returning to Istanbul and Ankara after years in the cold for a flurry of meetings to understand whether Turkish elections could bring a tidal change for its economy and financial markets.

According to several investors and bankers involved, large foreign lenders including BBVA (BBVA.MC) and BNP Paribas (BNPP.PA) organised trips and calls for clients to meet current Turkish policymakers and opposition officials and advisers.

President Tayyip Erdogan's unorthodox policy approach, including aggressive rate cuts in the face of soaring inflation, left the economy and markets heavily state-managed and spurred an exodus of foreign investors over the last five years.

But after two decades in power, Erdogan and his ruling alliance are trailing in some polls ahead of the May 14 vote behind an opposition that has pledged to ditch his policies and return to orthodoxy in running the big emerging market economy.

Adding to pressure, the economic cost of the devastating earthquakes that struck Turkey’s south on Feb. 6 is estimated to be around $100 billion.

The investor visits and conference calls have ramped up in recent weeks and will continue through April, garnering far more interest than in years past including before the COVID-19 pandemic halted much travel, the sources said.

One person familiar with the plans said a trip next week organised by Spanish lender BBVA includes clients representing some $1.5 trillion in debt-related assets across emerging markets.

"There is a jumbo-sized interest rate hike potentially coming in a relatively short period" if the opposition wins, the person said. Investors seek to understand "who will win, who will hold key positions and what the programme will be".

BBVA, majority owner of Turkey's Garanti Bank (GARAN.IS), declined to comment. French lender BNP, a big stakeholder in local lender TEB, said it would host its meetings next month.

It is not only trips into Turkey either.

Officials from the country's Treasury and Environment and Energy ministries have been in Europe's financial capital London in recent days speaking to money managers about the earthquakes and new "sustainable" bonds.

Viktor Szabo, a portfolio manager at Abrdn who attended one the meetings, said the plans for the bonds seemed almost fully formed, meaning the government might even try and sell them ahead of the election.

Analysts say Turkey needs to borrow another $5 billion this year. Getting a large chunk money via a sustainable bond sale is a hope although an additional, standard-style dollar-denominated bond or a sukuk could make up any shortfall.

Turkey's repeated bouts of currency turmoil have seen many international funds sell their lira-dominated government bonds. The foreign-owned share of that market now stands at less than 1% compared to more than 25% five years ago, government data show.

While some analysts expect that an opposition victory in the presidential and parliamentary vote would bring a sharp rally in the lira currency, others expect more uncertainty given that monetary tightening could slow economic growth.

Complicating any transition is the need to address the more than 100 financial regulations adopted since the latest currency crash in late 2021, and the expected overhaul of personnel at the central bank, regulators and ministries, analysts say.

Wall Street bank Citi said it held two days of meetings in Istanbul earlier this month for its bond and equity investors. "The mood is hopeful for positive change" even as the atmosphere is "tense" over the vote outcome, it wrote afterward.

Another person familiar with an array of planned meetings said not only Western but Gulf-based investors are making inquiries about potential foreign direct investments, or FDI, rather than just financial assets.

A Western foreign investor who will visit Turkey soon said the group plans to listen to the opposition as much as possible but also meet central bank policymakers.

"It may be a good opportunity to rethink Turkey's currently significant 'underweight' positioning among peer markets," the investor said. "If there will be a star among emerging markets this year, it will be Turkey."

The central bank declined to comment on any such meetings.

• European banks post third week of losses
• Deutsche Bank among top decliners
• STOXX down 1.4%, still set for weekly gains

A steep sell-off in banking stocks hit European indexes on Friday as worries about the stability of the financial sector intensified, with Deutsche Bank tumbling as cost of insuring the German bank's debt against the risk of default jumped to a more than four-year high.

The pan-European STOXX 600 index (.STOXX) fell 1.4%, but still posted a weekly gain supported by a sharp recovery earlier this week.

"Post what happened to Credit Suisse last weekend, investors don't want to hold on to positions that have any concern around them over the weekend, getting out of such positions is probably what we're seeing with Deutsche Bank," said Paul van der Westhuizen.

"And, of course, there is money to be made if you're on the right side of an over-reaction in the stocks."

Deutsche Bank (DBKGn.DE) tumbled 8.5%, after a sharp jump in the cost of insuring against the risk of default. The German heavyweight said that it would redeem $1.5 billion of Tier 2 notes due in 2028.

"Deutsche Bank has taken the place of Credit Suisse really as being the next sort of weakest link in the chain, possibly unjustly," said David Goebel, associate director of investment strategy at Evelyn Partners.

Shares of UBS Group AG (UBSG.S) and Credit Suisse AG (CSGN.S) fell 3.6% and 5.2%, respectively, after Bloomberg News reported they were among the banks under scrutiny in a U.S. Department of Justice (DOJ) probe into whether financial professionals helped Russian oligarchs evade sanctions.

European banks (.SX7P) fell 3.8% and were set for their third week of declines, after the failure of U.S. mid-sized lenders and the turmoil at Credit Suisse highlighted growing risks to banks in the wake of tightening financial conditions.

Austria's Raiffeisen Bank International (RBIV.VI) slid 7.9% after Reuters reported the European Central Bank was pressing the bank to unwind its highly profitable business in Russia.

European Union leaders and the ECB sought to calm market jitters by presenting a united front on the banking sector, saying EU lenders were well capitalised and liquid thanks to lessons drawn after the 2008 Lehman Brothers collapse.

A series of interest rate hikes from the Federal Reserve and other central banks in Europe this week also added to fears of tightening financial conditions even as the U.S. central bank signalled a pause in its hiking cycle.

The STOXX 600 is up just 3.5% on a year-to-date basis, having risen as much as 10% at one point. The U.S. benchmark S&P 500, meanwhile, is up 2.9% so far this year.

An S&P Global survey showed business activity across the eurozone unexpectedly accelerated this month as consumers splashed out on services, but weakening demand for manufactured goods deepened the downturn in the factory sector.

• European banks, bonds, CDS sell off
• Deutsche Bank CDS rise to highest since late 2018
• Confidence hurt, outlook dims

Confidence in European banks deteriorated further on Friday, with the cost of insuring against a debt default rising sharply as the profit outlook for the sector dimmed.

Global banking shares and broader markets have been rocked since the sudden collapse this month of two U.S. regional banks and a forced merger between Credit Suisse (CSGN.S) and UBS (UBSG.S).

Policymakers have stressed the turmoil is different from the global financial crisis 15 years ago because banks are better capitalised and funds more easily available.

But this has failed to stem a selloff in bank shares and bonds, with rising funding costs in fixed income markets adding to the banking sector's woes and clouding their profit outlook.

Deutsche Bank's (DBKGn.DE) five-year credit default swaps (CDS) jumped 19 basis points (bps) from Thursday's close to 222 bps, rising to their highest since late 2018, data from S&P Global Market Intelligence showed. They later eased back to 208 bps.

UBS's (UBSG.S) five-year CDS shot up 23 bps from Thursday's close to 139 bps, S&P data showed, before retracing slightly to 135 bps. CDS prices move up when the default risk is seen to be rising.

"We'll probably see regulators look to act to restore confidence because what we do know is that confidence is key to the whole concept of banking and it is hard to win and it's easy to lose," said Mark Dowding, chief investment officer at BlueBay Asset Management.

In the United States, the support could mean guaranteeing more bank deposits, Dowding said.

European Union leaders and the ECB sought to calm market jitters by presenting a united front on the banking sector on Friday, saying EU lenders are well capitalised and liquid thanks to lessons drawn after the 2008 Lehman Brothers collapse.

Banking stocks fell sharply across Europe, with heavyweights Deutsche Bank and UBS hit hard.

The prospect that interest rates may be close to peaking, as financial markets are signalling, would also curb banks' profit margins on lending.

"It seems that today’s sell-off is largely triggered by fear than by fundamentals," said Joost Beaumont, head of bank research at ABN AMRO.

European banks' Additional Tier 1 (AT1) debt came under fresh selling pressure, with Deutsche AT1 prices down 7 cents, according to Tradeweb data.

UBS and Barclays AT1s fell roughly 2.5 and 2.7 cents in price, respectively, Tradeweb data showed.

The selloff in AT1s highlighted concerns about rising funding costs for European banks and helped explain why the sector was facing renewed pressure on Friday, analysts said.

With AT1 bond yields sitting at 12%, far exceeding the return on equity, the AT1 market was no longer a "viable funding source" for banks, said Saxo's head of equity strategy Peter Garnry.

The implication is that banks would potentially have to issue new shares to raise cash.

"The banking crisis is far from over and the impact on credit conditions and the economy will likely be felt over the next six months," said Garnry.

Federal Reserve chief Jerome Powell on Wednesday said banking industry stress could trigger a credit crunch with "significant" implications for the economy.

Markets are also pricing in U.S. rate cuts and a chance of easing in the euro area by year-end -- moves that would also eat into banking margins.

AT1s meanwhile have been hurt since the Swiss regulator ordered 16 billion Swiss francs ($17.5 billion) of Credit Suisse's AT1 debt to be wiped out as part of its rescue takeover by UBS last weekend.

Shareholders, who usually rank below debt investors when a company becomes insolvent, will receive $3.23 billion.

Authorities in Europe and Asia said this week they would continue to impose losses on shareholders before bondholders - unlike the treatment of bondholders at Credit Suisse - but unease has lingered.

Morocco has restricted tomato exports since late February with a total ban in place from last week until Thursday to lower domestic prices, the head of the country's main fruit and vegetable exporters' group said on Friday.

Lahoucine Aderdour, head of the Federation of Moroccan Exporters of Fruits and Vegetables (FIFEL), told Reuters the Agriculture Ministry had agreed on a daily quota of tomato exports last month before stopping all exports from March 18 to 22, with a lower quota of 700 tonnes a day from Thursday.

On Friday, exporters were given a quota of 1000 tonnes but that was less than the usual 1500 tonnes they used to have, he said.

Higher-priced produce such as cherry tomatoes, which represent more than half of the North African country's tomato exports, are not included in the restrictions, Aderdour said.

Bad weather in Morocco and Spain has disrupted vegetable harvests this year, leading to shortages of salad staples in Europe and to higher prices that helped push UK inflation to 10.4% in February.

Traders fear the export cuts will hit their market share in key markets in the European Union and in Britain.

"We are failing to honour our long-term supply contracts,” one trader said, noting that most contracts with British clients are signed a year ahead at fixed prices.

"The credibility of Morocco as a stable tomatoes supplier to both the EU and UK market is at stake," he added.

The agriculture minister did not respond to Reuters calls for comment and the agency in charge of food exports did not immediately answer a request for comment.

However, when asked about inflation on Thursday, a government spokesperson said it was impossible to talk about exports while domestic food prices were high.

Inflation in Morocco led the central bank to increase its benchmark interest rate for the third time in a row by 50 basis points to 3% last Tuesday. Food inflation jumped to 20.1% last month, bringing general inflation to 10.1%, a level unmatched since the 1980s.

"We expect normal export activity to resume as production improves," Aderdour said.

Morocco also imposed some restrictions last year but dropped them after domestic prices fell.

This year, Morocco's main tomatoes producing region of Souss-Massa region expects an output of 695,000 tonnes, down from 975,000 tonnes last year, according to agriculture ministry figures.

The export bans may push growers to switch to cherry tomatoes or other products that are not restricted, said one exporter who spoke on the condition of anonymity.

"Looking at the cost of production now together with export bans… round tomatoes are no longer a profitable business," he said.

Cryptocurrency exchange Binance has resumed withdrawals on its platform after technical issues affected spot trading, the company said in a tweet.

Binance suspended deposits and withdrawals earlier on Friday due to a "bug on a trailing stop order," Chief Executive Changpeng Zhao said in a tweet, adding that the pause in deposits and withdrawals was a standard operating procedure.

Ilya Volkov, CEO of Youhodler, a crypto lending platform, agreed that the pause was a result of a technical glitch and would not affect cryptocurrency prices significantly.

Bitcoin , the world's largest cryptocurrency was down 1.14% at $28,021. It hit a nine-month high on Monday.

"These kinds of bugs could happen everywhere, and crypto exchanges are not unique," Volkov said.

A Binance spokesperson did not respond to a request for additional comment.

The world's largest crypto exchange said last week it will halt sterling deposits and withdrawals, a month after it ceased dollar transfers.

The cessation of traditional currency transfers comes amid a growing crypto crackdown by U.S. authorities.

Reuters has previously reported that the Justice Department is investigating Binance for suspected money laundering and sanctions violations.

A top Binance executive told The Wall Street Journal and Bloomberg last month that Binance expected to pay penalties to resolve U.S. investigations into the company.

Russia's middle class will shrink as social inequality grows over coming years, an economic study conducted by Russian experts suggested, as sanctions against Moscow and limited growth potential scupper development prospects.

The study, published this week, presents four possible scenarios for how Russians' living standards will change between now and 2030 from experts from the Social Policy Institute at Moscow's Higher School of Economics, one of Russia's leading educational establishments.

The study, based on a 2022 survey of experts from economic institutions, businesses and public organisations, states that only a combination of global economic growth and an easing of sanctions on Russia, imposed by the West because of what Moscow calls its "special military operation" in Ukraine, can improve real incomes and reduce poverty.

The middle class is set to suffer in any event, even if sanctions pressure is reduced, the study finds.

Russia's economy proved unexpectedly resilient in the face of tough Western sanctions last year, but a return to pre-conflict levels of prosperity may be far off as more government spending is directed towards the military.

The study's most optimistic scenario sees real incomes exceeding 2021 levels by around 2% in 2030 and poverty dropping below 10% from 11.8% in 2022. In that scenario, the size of the middle class would still drop to 14%-31% by 2030 from current estimates of 20%-50%.

"Thus, even in the most favourable development of events, one can expect the deterioration of the middle class and of the population's social and psychological well-being," the study's authors write.

The worsening scenarios eventually see real incomes declining up to 2030 and poverty approaching 20%.

"On the one hand, there will be an increase in the concentration of wealth and a further breakaway at the 'top', and on the other hand, a contraction of inequality below through the convergence of the middle (or formerly middle) strata with the poor," the authors say.

Growing inequality in all four scenarios could lead to increased social tensions, the study finds. All four scenarios expect more and more security officials to drop into the middle class.

Banking stocks fell sharply again on Friday, with European giants Deutsche Bank and UBS knocked by worries that regulators and central banks have not yet contained the worst shock to the sector since the 2008 global financial crisis.

The S&P 500 Banks Index (.SPXBK) was 1.5% lower and wider indicators of financial market stress were also flashing warning signs. The euro fell against the dollar, bond yields sank and the costs of insuring against bank defaults surged despite efforts by policymakers worldwide to reassure investors.

JOHN CAREY, MANAGING DIRECTOR AND PORTFOLIO MANAGER, AMUNDI US, BOSTON

"We've had some failures and shutdowns, and people are wary of the sector. I'm of the opinion that most of the banks - at least here in the U.S. and Europe, too - are going to make it through this period of difficulty. The credit quality is generally better than it was back in the '07-‘09 period. A lot of people are making comparisons between this situation and what happened then. In general, the credit quality is better now, although we have to watch closely the commercial real estate. Back in the '07-‘09 subprime meltdown period, it was largely residential mortgages, and this time I think the concern centers on commercial real estate. I don't know that the issues will be as difficult to resolve, but we have some months ahead of us of uncertainty.

"The sharp increase in interest rates last year caught a lot of people by surprise. People were caught off guard by how quickly rates rose, and obviously some companies made some imprudent decisions in their investment portfolios.

"I'm not in a panic mode myself but it is prudent to exercise some caution and be patient and not think this is all going to be resolved over the weekend."

“After you have one event like that, SVB, and then Signature, and Credit Suisse following that, and then Deutsche Bank, everyone suspects that there are more problems out there that have surfaced. Any bank is going to be reluctant to go public with any of its problems for obvious reasons, since SVB, and Credit Suisse were suffering serious withdrawals - that was the engine which got those concerns into the market.”

“The market is suspicious, or weary is maybe a better way to put it, that there are more problems out there that have come forth.”

“It takes time. It's going to have to be weeks without any problems in the banking system before markets will be convinced that it's not a systemic problem.”

PETER TUZ, PRESIDENT, CHASE INVESTMENT COUNSEL, CHARLOTTESVILLE, VIRGINIA

"Two weeks ago we thought this was kind of an isolated event that began with Silicon Valley Bank and then it spread to First Republic and Signature Bank... Today it kind of confirmed this is a global issue right now, and nobody knows where it will end. So people are acting with their feet and continuing to sell bank stocks.

"I think it's going to go on through the first quarter of earnings season because not until you see the numbers and hear management talk about the balance sheet and their business and what the rest of the year looks like is there the potential for things to calm down. That could calm down the industry. If their business looks increasingly risky after the first quarter, then who knows. But my guess is every bank management team has about a week now to prepare their balance sheet to look as good as it can at the end of March, and that may stabilize the industry.

"I think we're in for about three more weeks of turmoil."

ING ECONOMICS TEAM (emailed) "Most European banks are impacted by these events mainly via the more cautious market sentiment. Debt risk premiums have widened, and the sharp swings in financial markets have guaranteed that the primary bond markets have remained steadily closed so far. The wider spreads make it more expensive for banks to fund their operations, the impact of which will come through only slowly as banks advance with their funding programmes."

“The decision of the Swiss authorities to wipe out the Credit Suisse AT1 debtholders resulted in the AT1 market being severely hit. It is doubtful that banks will be able to issue new AT1 anytime soon, increasing the likelihood of outstanding AT1 notes being extended.”

“We consider that the recent events in the banking sector have resulted in substantially increased uncertainty, which is likely to continue to be reflected as substantial short-term volatility in credit markets. We expect bank spreads to be negatively impacted in general and also in the longer term, whether in bank capital or in bank senior debt, as bank investors factor in more uncertainty regarding resolution practices.”

PETER GARNRY, HEAD OF EQUITY STRATEGY, SAXO BANK, DENMARK

“The developments in the AT1 market mean that most European banks are incentivized at this point to issue common equity which is diluting for shareholders and also the reason why banking stocks are being reset lower. “

“The pressure on bank stocks continued yesterday even after Yellen tried to soften her rhetoric on the Biden administration's stance on official action if the turmoil in the banking system continues. Headline risk and the price action in bank stocks will remain in focus, and not just in the US, but also in Europe, where the stress on Tier1 bank debt shows that banks' profitability outlook is under threat on rising funding costs.”

FREDERIQUE CARRIER, HEAD OF INVESTMENT STRATEGY, RBC WEALTH MANAGEMENT, LONDON

“When the tide recedes, it tends to expose weakness and this is what we have seen. We are optimistic that the cases of SVB and Credit Suisse are isolated and contained, but in our view the tail risk has not entirely gone. Scars heal slowly and concerns about the sector are likely to linger. The banking system is based on confidence so we have to monitor future developments very closely.

"Bank stocks have fallen a lot and look cheap. As part of a global diversified portfolio, there is certainly room for high quality banks, but we would be cautious. We wouldn't hold more than a benchmark position, because with an uncertain economic outlook it is likely to become more difficult for banks- their cost of capital and funding are likely to increase and they will probably have to pay more to attract deposits. In the case of European banks, capital distribution is uncertain as capital preservation may have to take precedence.”

PAUL VAN DER WESTHUIZEN, SENIOR STRATEGIST, RABOBANK, NETHERLANDS

"It seems to be driven by a serious downturn in Deutsche Bank's equity price... Deutsche is a bank that has had its own issues with regulators, it has also seen profit volatility and gone through a restructuring. There is a fundamental difference in that Deutsche has returned to profitability over the last few quarters, whereas Credit Suisse did not have a profitable outlook for 2023 at all."

"It seems like post what happened to Credit Suisse last weekend, two things might be at play here. First of all, investors don't want to hold on to positions that have any concern around them over the weekend. Getting out of such positions is probably what we're seeing with Deutsche Bank. And of course there is money to be made if you're on the right side of an overreaction in the stocks."

“European banks probably suffered from contagion from what was going on in the US, where the regional banks seem to be under pressure in the rising rate environment. European banks have, in fact, had no fundamental issues whatsoever. They are sound and historically stronger than they've ever been. They have been benefiting from the rising interest rate environment and their profitability metrics are finally started kicking up. We had the outlier of Credit Suisse which was there was a sudden lack of trust that led to the run on the bank, but that came from quite a few years of mismanagement and scandal.”

AUTONOMOUS RESEARCH, LONDON

“We are relatively relaxed in view of Deutsche's robust capital and liquidity positions.””

“We have no concerns about Deutsche's viability or asset marks. To be crystal clear - Deutsche is NOT the next Credit Suisse.”

JAN VON GERICH, CHIEF ANALYST, NORDEA, HELSINKI

"Underlying sentiment is still cautious and in this environment no one wants to go into the weekend risk on."

"It's very volatile and it's too early to say things will calm down."

"It's crazy how volatile markets are."

"All of this is happening at a time of exceptionally high inflation environment and adds to the volatility."

“Generally speaking in this kind of environment markets are quite keen on looking at the weakest link. In general markets are quite worried and are focusing on the potential next domino. If it’s reasonable to focus on Deutsche or not I really don’t know.”

“When these kind of worries hit the market, it’s quite usual that markets buy (the bonds of) Germany, which is outperforming as a flow to safety.”

Short sellers have made a profit of over $100 million on paper betting against Deutsche Bank stock over the last two weeks, financial data company Ortex said on Friday.

Ortex said short interest in Deutsche Bank's (DBKGn.DE) European and U.S.-listed shares has doubled over that period to $360 million.

Deutsche's German shares were last down 10% to 8.4 euros ($9.03) on Friday as ongoing fears about the health of global banks knocked confidence in Germany's biggest bank. They've lost 24% in value in the past two weeks.

($1 = 0.9298 euros)

• Obsidian falls after regulator says co caused seismic events
• Enbridge slides as U.S. regulators extend tunnel permit process
• Jan retail sales up 1.4%, seen down in Feb
• TSX falls 0.5%, banks shed 0.8%

Canada's main stock index fell on Friday and was set for weekly losses, weighed down by energy and financial shares as turmoil in the European banking sector soured the mood.

Global markets were rattled after European banks fell sharply, led by Deutsche Bank (DBKGn.DE) and UBS (UBSG.S), on mounting worries that the crisis in the sector was showing no signs of easing.

At 10:13 a.m. ET (14:13 GMT), the Toronto Stock Exchange's S&P/TSX composite index (.GSPTSE) was down 89.95 points, or 0.46%, at 19,369.97.

The financials sector (.SPTTFS) and heavyweight banks (.GSPTXBA) lost 0.8% each.

"Markets continue to wrestle with this flare-up in uncertainty within the banking industry," said Craig Basinger, chief market strategist at Purpose Investments.

"On a day-to-day basis, it looks worse today, with what's going on in Deutsche Bank and the European banks."

The energy sector (.SPTTEN) slumped 1.5% on weak crude oil demand prospects after the U.S. energy secretary said refilling the country's Strategic Petroleum Reserve (SPR) could take several years.

The TSX is set for its third straight week of losses in March as hopes of calm returning to global financial markets earlier in the week were shattered following a loss of confidence in European lenders.

Canadian equities are now eyeing losses for the quarter ending in March.

Among company news, Enbridge Inc (ENB.TO) slid 0.2% after the U.S. Army Corps of Engineers extended the federal permitting process for the oil distributor's proposed Great Lakes Tunnel.

Shares of Obsidian Energy Ltd (OBE.TO) fell 2.1% after Alberta's energy regulator said the oil and gas producer had triggered a series of earthquakes in the province between November and March.

Meanwhile, a Statistics Canada report showed retail sales rose by 1.4% in January from December, on higher sales at motor vehicles and parts dealers, as well as gasoline stations.

Sales were seen to fall by 0.6% in February, the agency said in a flash estimate.

Shares of Twitter co-founder Jack Dorsey's Block Inc (SQ.N) fell 4% in morning trading on Friday, a day after the payments firm's Cash App business became the latest target of U.S. short seller Hindenburg Research.

In a report, Hindenburg has alleged that Block overstated its user numbers and understated its customer acquisition costs.

The company called the report "factually inaccurate and misleading" and said it will work with the U.S. securities regulator to explore legal action against Hindenburg.

Block shares were trending on retail investor focused forum Stocktwits under 'extremely bearish' sentiment after giving up all the gains made so far this year on Thursday and closing 15% lower.

"The major problem with Block despite the multitude of allegations leveled by Hindenburg is it is still losing money. This is not the environment for money losing companies," Thomas Hayes, chairman and managing member at Great Hill Capital said.

"It is a 'shoot first, ask questions later' stock at this point."

Brokerage RBC Capital Markets said the report will have a negative overhang on the shares for some time, but its view on the stock remained unchanged.

Hindenburg in its report said that while CEO Dorsey has touted Cash App's mention in hip-hop songs as an evidence of its mainstream appeal, its review showed the rappers describe it as a means to "scam, traffic drugs or even pay for murder".

Morningstar analysts said the action of rappers is not compelling proof of extensive issues but the more troubling allegation is that Block is aware of widespread fraud on its platform.

Brokerage Jefferies said in a note that most of the issues raised by Hindenburg are known, while pointing out that the short seller has not questioned the accuracy of the company's financials.

Short sellers typically sell borrowed securities and aim to buy these back at a lower price.

Bed Bath & Beyond Inc (BBBY.O) will lay off about 1,300 more employees at four locations in New Jersey, including at discount health and beauty chain Harmon, a Worker Adjustment and Retraining Notification (WARN) notice showed on Friday.

The layoffs will come ahead of a change in labor laws in the U.S. state in April that would mandate companies with 100 or more employees to notify them 90 days in advance of plant closings and mass layoffs, instead of 60 days.

Bed Bath & Beyond had said last month it was planning to raise around $1 billion, through an offering of preferred stock and warrants, to avoid bankruptcy.

In January, the struggling retailer had said it would lay off more employees to reduce costs, after announcing last year that it would cut 20% of its corporate and supply-chain workforce.

• New fuel pricing scheme aimed at giving poor relief
• IMF says it wasn't consulted before announcing the scheme
• IMF wants explanation over the scheme before signing agreement

A long-awaited loan agreement between Pakistan and the International Monetary Fund (IMF) will be signed once a few remaining points, including a proposed fuel pricing scheme, are settled, an IMF official said on Friday.

Pakistan and the IMF have been negotiating since early February on an agreement that would release $1.1 billion to the cash-strapped, nuclear-armed country of 220 million people.

The latest issue is a plan, announced by Prime Minister Shehbaz Sharif last week, to charge affluent consumers more for fuel, with the money raised used to subsidise prices for the poor, who have been hit hard by inflation. In February it was running at its highest in 50 years.

The plan involves a difference of around 100 rupees (35 U.S. cents) a litre between the prices paid by the rich and poor, according to the petroleum ministry.

Petroleum Minister Musadik Malik told Reuters on Friday that his ministry was working out details. It was not a subsidy but a relief programme, he said.

"People with larger cars will pay more than people with smaller cars. Smaller cars are more fuel efficient, so people will move towards more fuel-efficient cars," Malik said.

But the IMF's resident representative in Pakistan, Esther Perez Ruiz, said the government had not consulted the fund about the scheme.

Ruiz, in a message to Reuters, confirmed a media report that a staff-level agreement would be signed once a few remaining points, including the fuel scheme, were settled.

She has said that the IMF would ask the government for more details, including how it would be implemented and what protections would be put in place to prevent abuse.

The minister said the scheme wouldn't cost the government anything extra.

"We can explain all this to the IMF when they ask," he said, adding that the lender was in touch with the finance ministry not his.

The finance ministry did not immediately respond to a request for a comment.

With $4.6 billion in foreign exchange reserves held by Pakistan's central bank in the week ending Match 17, enough to cover only about four weeks of necessary imports, Pakistan is desperate for the IMF agreement to disperse a $1.1 billion tranche from a $6.5 billion bailout agreed in 2019.

Islamabad has implemented several measures, including devaluing the rupee, lifting subsidies and raising energy prices, as preconditions for the agreement, which the finance minister said this month was "very close".

Deutsche Bank shares (DBKGn.DE) tumbled on Friday after the cost of insuring the bank's debt against the risk of default shot to more than four-year highs, highlighting concerns among investors about the stability of Europe's banks.

The region's banking sector has had a rough ride in the last week, with a state-backed rescue of Credit Suisse and turmoil among regional U.S. banks fuelling concerns about the health of the global banking sector.

Deutsche shares, which have lost more than a fifth of their value so far this month, fell by as much as 14.9% on Friday to their lowest in five months. The shares were last down 13% at 8.13 euros ($9.16).

Germany's largest bank has seen $3 billion wiped off its market value in the space of just week.

Deutsche Bank's credit default swaps (CDS) - a form of insurance for bondholders - shot up above 220 basis points (bps) - the most since late 2018 - from 142 bps just two days ago, based on data from S&P Market Intelligence.

On Thursday, Deutsche CDS had their largest one-day gain on record, based on Refinitiv data. But they remain well below highs of close to 300 bps logged during the euro zone debt crisis in 2011.

CDS for major European banks rose across the board on Friday, reflecting investors' reluctance to carry any risk on their portfolios going into the weekend.

"Deutsche Bank has been in the spotlight for a while now, in a similar way to how Credit Suisse had been," Stuart Cole, head macro economist at Equiti Capital, said. "It has gone through various restructurings and changes of leadership in attempts to get it back on a solid footing but so far none of these efforts appear to have really worked."

Deutsche Bank declined to comment when contacted by Reuters.

German finance industry regulator BaFin had no comment.

Some of Deutsche Bank's bonds meanwhile sold off too. Its 7.5% Additional Tier-1 dollar bonds fell nearly 6 cents to 70.054 cents on the dollar, pushing the yield up to 27%. . That yield is almost triple what it was just two weeks ago, based on Tradeweb data.

Despite the turbulence, market watchers highlight that European regulators and central banks have reiterated their intention to keep markets stable, and that the banks themselves are more strongly capitalised and regulated than they were back in 2007 just before the global financial crisis.

"We have no concerns about Deutsche's viability or asset marks. To be crystal clear - Deutsche is NOT the next Credit Suisse," a report from Autonomous, an independent researcher, said.

"Judging from the movements in Deutsche's CDS, AT1s and share price, investors are worrying about the health of the bank. We are relatively relaxed in view of Deutsche's robust capital and liquidity positions," it said.

AT1s issued by banks have come under pressure since Credit Suisse was forced to write down $17 billion of its AT1s as part of a forced takeover by UBS (UBSG.S) at the weekend.

"The fallout from the wipe out of AT1 bonds in the CS rescue has raised questions about a key part of bank funding, which makes the problems DB has been facing that much more difficult to overcome," Cole said.

The STOXX 600 index of European banks - which does not include shares of Credit Suisse or UBS - has seen one of its most volatile weeks of trading in a year. The index was last down 5.1%, heading for a monthly decline of nearly 20%.

Separately, Deutsche Bank said it would redeem $1.5 billion in a set of tier 2 notes due in 2028. The bank had already issued similar new notes in February, which were designed to replace the notes that the bank is now redeeming.

($1 = 0.9273 euros)

Targeting cows to fight climate change may seem counterintuitive. Yet, governments from New Zealand to Europe are zeroing in on livestock, whose burps and farts help generate 15% of global greenhouse gas emissions each year, United Nations estimates show. An industry backlash against plans to tackle the issue will teach punters to treat burgers as polluting fuel.

Digestion and waste from cows and other ruminants produce methane, a gas which is 80 times more powerful than carbon dioxide in trapping heat in the atmosphere in the first 20 years after its release. Cattle is a major contributor to methane emissions from agriculture, which hit 142 metric tons in 2022, triple the amount of those from the oil sector, according to the International Energy Agency.

To meet the 2021 Glasgow pledge to reduce methane in the atmosphere by at least 30% by 2030, European Union states are discussing a proposal to impose emission limits on farms in the 27-nation bloc, which would reduce livestock amounts. In New Zealand, where agriculture makes up more than half the country’s harmful gases, the government is looking to tax farmers based on factors like the number of animals kept, the fertilizers used and energy efficiency.

Getting these plans off the ground won’t be easy. Farmers in Italy and Germany, which together make up over one quarter of Europe’s beef production, are pushing back. True, milk and meat producers could use technology to curb emissions. Dutch specialty chemicals company DSM (DSMN.AS) and Kiwi milk producer Fonterra (FCG.NZ) make feed additives that allow cows to burp less. French dairy giant Danone (DANO.PA) separates solids from liquids in milk production, a process that can cut the methane released by over a fifth. But it’s not applicable to every farm and can be pricey.

The current regulatory push could also have some negative consequences. ‘Cow fart’ taxes will make New Zealand’s milk exports more expensive, driving consumer goods companies and retailers to seek cheaper supplies from countries like Saudi Arabia, which emits even more methane. Closing down farms will also kick small players out of a fragmented farming market.

Yet if the price of meat goes up, that will close a gap with plant-based burgers and steaks, which today cost twice as much as animal-based ones, according to the Good Food Institute. That will deter consumers from purchasing chops and sausages and opt for less carbon-intensive alternatives.

The debate will ultimately beef up consumers’ awareness of the danger that a growing cattle population poses to climate change. The proposed government policies might not hit the bull’s-eye. But like fossil fuels ten years ago, this will be the start of a long but necessary battle.

European Union countries agreed on March 16 to try to reduce the number of farms covered by proposed rules to cut pollution and greenhouse gas emissions from livestock.

The European Commission, which drafts EU laws, last year proposed that all cattle, pig and poultry farms with over 150 livestock units, around 184,000, abide by emission limits.

French dairy company Danone on Jan. 17 pledged to reduce methane emissions from its fresh milk supply chain by 30% by 2030 from its 2020 level.

The New Zealand government in October 2022 proposed a system to levy taxes on farmers based on the level of emissions from their herds, in what has become known as the 'fart tax'.

The global banking turmoil threatens to squeeze U.S. cannabis companies already struggling with meager funding sources by drying up support from regional lenders and tightening fundraising from alternative avenues.

Most U.S. banks do not service cannabis companies as marijuana remains federally illegal despite several states legalizing its medicinal and recreational use and is a Schedule 1 drug.

Only about 10% of all U.S. banks and about 5% of all credit unions provide cannabis banking, as per analysts' estimates.

"What this crisis means is probably the duration of the capital tightness in our space (will continue) because we're seeing risk-off mentality," said Morgan Paxhia, co-founder of cannabis hedge fund Poseidon Investment Management.

"We're expecting banks to become more restrictive with lending and that's going to have implications."

The collapse this month of two U.S. mid-sized lenders -- the Silicon Valley Bank and Signature Bank (SBNY.O) -- and the Swiss government-brokered deal for UBS (UBSG.S) to buy Credit Suisse (CSGN.S) have sparked fears of a contagion and shredded investor confidence.

"Given they already have slim pickings when it comes to raising capital, nervous investors won't help the situation," said Rachel Gillette, partner and leader of Holland & Hart's cannabis practice.

Smaller banks, regional lenders and credit unions that typically extend credit to the cannabis sector have been flagged by analysts as facing higher risk from the current turbulence.

U.S. cannabis borrowers could also see their already higher interest rates go up further due to the crisis.

Average interest rate in the cannabis sector can be as high as 20%, according to True Trading Group, an online community of traders and entrepreneurs. That compares with the 5% to 5.7% average rate for business loans from traditional banks, as per Bankrate, an online publisher of finance content.

Expensive loans may not be the only challenge for the sector. Chances of weed companies securing new capital have now deteriorated, at least four fund managers told Reuters.

"It's incredibly hard raising capital in cannabis, but we now think (opportunities to secure new capital) are even lower as investors are cautious," said Paxhia.

"Primary investors in cannabis are high net worth individuals not institutional capital, and those pools of capital are going into a risk-off mode."

Investors had flocked to the sector encouraged by a boom in demand during the pandemic as well as hopes of passage of the Secure and Fair Enforcement Banking Act (SAFE), which protects lenders serving legitimate cannabis-related businesses.

However, demand has since eased and the SAFE Act is stuck in Senate.

ETF flows into the sector fell to about $404 million last year, down from about $2.3 billion in 2021, according to ETF data provider TrackInsight.

Investors pulled $34.13 million out of U.S. cannabis exchange-traded funds since the start of 2023, compared to inflows of $116 million in the first quarter a year earlier, according to Refinitiv data.

"It (banking crisis) certainly has shot away a lot of investors who were just beginning to think about deploying more capital into the space again," Vince Ning, CEO and co-founder of Nabis, the largest cannabis wholesale distributor in California.

"Should the sector deteriorate further, you could see more predatory financings for smaller operators with no choice," said Adam Heimann, co-founder and CEO of True Trading Group.

Some investors also fear that the crisis will add uncertainty around the passage of the SAFE Act.

The U.S. House of Representatives passed it in 2021, but the Senate is yet to approve the bill.

On Thursday, Senate Banking Chairman Sherrod Brown said hearings on SAFE Act has been postponed to focus on the bank crisis.

"This crisis, once again, de-prioritizes cannabis reform in Washington DC," said Paxhia.

U.S. companies including Curaleaf Holdings Inc (CURA.CD), Green Thumb Industries (GTII.CD), Trulieve Cannabis Corp (TRUL.CD), and Terrascend Corp (TER.CD) either declined to comment or did not respond to requests for comment.

• European bank shares resume fall, Deutsche Bank tumbles
• Bond yields drop, yen gains as haven buying continues
• Markets price in aggressive rate cuts from Fed

Global stocks came under pressure on Friday from lingering concerns about the stability of the banking system, while safe-haven buying supported government bonds.

The MSCI World share index (.MIWD00000PUS) traded 0.6% lower and Europe's STOXX 600 index (.STOXX) was down 1.6%.

A STOXX sub-index of bank shares (.SX7E), which has swung wildly as traders debated if a forced tie-up last weekend between Credit Suisse (CSGN.S) and UBS (UBSG.S) marked stability or systemic stress, dropped by 5.9% on Friday, heading for its third consecutive week of declines.

Shares in Deutsche Bank plunged 13% as its credit default swaps, which reflect the cost of insuring debt against the risk of non-payment, climbed to a four-year high.

The German lender also announced plans to redeem $1.5 billion of tier 2 debt due not due to be repaid until 2028.

The moves highlight just how frail sentiment remains after turmoil in the banking sector revives memories of the 2008 global financial crisis.

On Wall Street, futures tracking the blue-chip S&P 500 share index fell 0.7% and those on the technology-focused Nasdaq 100 edged 0.4 lower.

Investors said that institutions were offloading financial sector exposure ahead of the weekend.

"People don't want the weekend risk," said Ed Hutchings, head of rates at Aviva Investors in London.

"Nothing untoward may be going on, but people are risk covering. The situation will almost get to excess and then it could snap back if there is nothing systemic."

U.S. Treasury Secretary Janet Yellen this week tried to assuage investor fears about the health of U.S. lenders and the economic ramifications of a potential lending crunch if depositors flee smaller banks, which have outsized roles supporting key sectors such as commercial real estate.

"I don't expect this volatility (in bank stocks) to subside anytime soon," said Peter Doherty, head of investment research at private bank Arbuthnot Latham in London.

U.S. regional banks Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O) failed this month and First Republic Bank (FRC.N) shares have lost most of their value.

On Thursday, Yellen pledged further action to safeguard bank deposits, after saying a day earlier that blanket insurance was unlikely. Banks borrowed $110.2 billion at the Federal Reserve's discount window in the latest week, with the hefty drawdown of emergency credit suggesting some lenders were now unable to secure funds elsewhere.

The Fed raised its main interest rate by a quarter point to a range of 4.5%-4.75% on Wednesday, but signalled it would consider a pause in light of banking system stresses.

Markets, however, are betting on a U.S. recession and incoming rate cuts.

As U.S. financial conditions tighten, said Arun Sai, senior multi-asset strategist at Pictet Asset Management, "this takes us closer to a hard landing, to a U.S. recession."

In government bond markets, the yield on the two-year U.S. Treasury , which tracks interest rate expectations, fell 16 basis points (bps) on Friday to 3.64%.

Ten-year yields fell 9 bps to 3.31%, after edging 9 basis points lower in the previous session. Bond yields fall as prices of the debt instruments rise.

By midday in London, traders were pricing in U.S. rate cuts of about 105 bps basis points to about 3.9% by the end of the year , up from about 88 bps earlier in the session.

Euro zone government bond yields followed Treasury yields lower, with the 2-year German yields down 19 bps to 2.306%.

In currencies, the dollar reversed a losing streak to gain 0.6% against major peers as risk aversion strengthened appetite for the reserve currency.

The Japanese yen, a safe-haven currency, climbed 0.6% to a six-week high of 130 per dollar , extending its weekly rise to a solid 1.4%. The euro fell 0.9% to $1.073.

Brent crude , the global oil benchmark, fell 2.8% to $73.11 per barrel.

The Life Insurance Corp. of India (LIC) (LIFI.NS) is planning to impose caps on its debt and equity exposure to companies, two sources said, in a bid to lower concentration of risk following criticism of its investment in Adani group companies.

After the Adani group lost over $100 billion in valuation post scathing allegations by U.S.-based Hindenburg Research, state-run LIC was criticized for having over $4 billion exposure to companies from the group.

LIC, the country's largest domestic institutional investor with assets under management of about $539 billion, is planning to cap its debt and equity exposure in individual firms, group companies and companies that are backed by same promoters, one of the sources, with knowledge of the matter, told Reuters.

"LIC is looking to have 'boundary conditions' on its investments that would limit its exposure to scrips," said the source.

The sources did not want to be named as the discussions are private until the LIC's board approves the plan. The LIC and federal finance ministry did not immediately reply to e-mails seeking comment.

The caps, once approved by the LIC board, would further limit the insurer's exposure. Currently, the insurer cannot invest more than 10% of outstanding equity in a company and 10% of the outstanding debt.

The Insurance Regulatory and Development Authority of India (IRDAI) also bars insurers from having more than 15% of their investment funds in equity and debt of companies owned by one corporate or a promoter group.

The move is aimed at strengthening investment strategies, and fence LIC from public criticism of its investment decisions or exposure to entities like the Adani group, the second source said.

The quantum of the caps would be decided by the insurer's investment committee before it is taken to the board "soon," the first source said.

"It is now planning to come up with sub-limits for such investments to keep a check on its exposure," the source said.

LIC had invested 301.2 billion rupees in shares of Adani group companies, and has a debt exposure of 61.82 billion rupees.

"The (current) overall limits imposed by IRDAI for investment in entities owned by a single group could mean LIC can invest large amounts in group companies as it has a sizeable investible fund," said Bahroze Kamdin, a partner at Deloitte India.

"This could lead to its investment getting impacted due to volatility in the market, and likely erosion of funds owed to policyholders."

($1 = 82.2170 Indian rupees)

(This story has been refiled to fix the spelling of Deloitte in paragraph 12)

The cost of insuring against the likelihood of default by European banks rose sharply on Friday, as concern about the outlook for the sector continued to grip markets, almost a week on from the collapse of Credit Suisse (CSGN.S).

Deutsche Bank's (DBKGn.DE) five-year credit default swaps (CDS) jumped 19 basis points (bps) from Thursday's close to 222 bps, data from S&P Global Market Intelligence showed.

Five-year CDS on the German bank were trading at their highest levels since early 2019 and on Thursday saw their largest one-day rise on record, according to Refinitiv data.

UBS's (UBSG.S) five-year CDS also shot up 14 bps from Thursday's close to 130 bps, the data showed.

Banking stocks fell sharply across Europe, with heavyweights Deutsche Bank and UBS hit hard by worries that the worst problems in the sector since the 2008 financial crisis were not yet contained.

"Underlying sentiment is still cautious and in this environment no one wants to go into the weekend risk-on," said Nordea chief analyst Jan von Gerich.

European banks' Additional Tier 1 (AT1) debt also came under fresh selling pressure, with Deutsche and UBS AT1s down around four and two cents in price, respectively, according to Tradeweb data.

Bank AT1s have been hurt since the Swiss regulator ordered 16 billion Swiss francs ($17.5 billion) of Credit Suisse's AT1 debt to be wiped out as part of its rescue takeover by UBS last weekend.

Shareholders, who usually rank below debt investors when a company becomes insolvent, will receive $3.23 billion.

Although European regulators and authorities in Asia have said this week they would continue to impose losses on shareholders before bondholders - unlike the treatment of bondholders at Credit Suisse - unease lingers.

Vice President Kamala Harris starts a weeklong trip to Africa this weekend as the United States seeks to pitch itself as a better partner than China, which has invested heavily in the continent over several decades.

Harris will discuss China's engagement in technology and economic issues in Africa that concern the United States, as well as China's involvement in debt restructuring, senior U.S. officials said.

One of the three countries Harris will visit is Zambia, which was the first African country to default on its sovereign debt during the COVID-19 pandemic, and is working with its creditors, including China, to reach an agreement.

"We're not asking our partners in Africa to choose," said a senior official, describing the competition with China, although he added that the U.S. has "real concerns about some of China's behavior in Africa" and its "opaque" business dealings.

Harris will be in Ghana from March 26-29, then in Tanzania from March 29-31. Her final stop is Zambia, on March 31 and April 1. She will meet with the three countries' presidents and plans to announce public- and private-sector investments.

The official, who spoke on condition of anonymity because of the sensitivity of the matter, said Harris would discuss the best ways for the international community to address debt challenges faced by Ghana and Zambia.

The White House hosted an Africa Leaders Summit in December, and President Joe Biden is expected to travel to Africa this year.

Harris has a personal connection to Zambia. Her maternal grandfather worked in the country, and she visited him there as a girl.

"The Vice President is very much looking forward to returning to Lusaka, which is a part of her family's story and a source of pride," one of the officials said.

Harris will also meet with young leaders and business representatives and discuss topics such as climate change and food insecurity.

A look at the day ahead in U.S. and global markets from Mike Dolan

After a week of sweeping interest rate rises into a simmering bank crisis, market anxiety about the state of the financial system persists as the end of the first quarter comes into view.

Just how much economic damage the banking fright on both sides of Atlantic will wreak is now a critical question for policymakers, who despite the latest round of rate hikes are now expected to be at or near the end of their tightening cycles.

On that score, the first early March business surveys from Europe showed little sign of disturbance yet - if anything they show economies picking up steam again just as the bank shock hit. And the brisk start to the year for major economies was also underlined by punchy British retail numbers.

That confuses the policy picture even more as it comes against continued jitters about recent bank failures, whether there's more stress to come, pervasive depositor uncertainty and how regulators respond.

U.S. regional bank stocks lurched lower again on Thursday, with the KBW Regional Bank index (.KRX) sliding 3% as Treasury Secretary Janet Yellen tried to reassure that public deposits were safe, promising firepower to battle any crisis - a day after she unnerved markets by saying blanket insurance of all deposits was not being considered.

But the ongoing stress level was evident in the latest Federal Reserve data on emergency lending to banks that showed continued large scale extensions of credit and which now include official foreign borrowing.

The Fed reported discount window borrowing, its main source of emergency credit, ticked down to $110.2 billion as of Wednesday from the record $152.9 billion last week.

But banks boosted borrowing under the Fed's newly launched Bank Term Funding Program to $53.7 billion - almost 5 times its first outing the previous week. The Fed also reported lending to foreign central banks went from nothing on March 15 to $60 billion - suggesting rising need for dollar liquidity overseas.

European bank stocks fell 3% early on Friday, with Deutsche Bank shares (DBKGn.DE) down for a third day - losing 5% amid rising market costs for insuring against the risk of default.

European Central Bank President Christine Lagarde is due to attend Friday's European Union summit in Brussels and update leaders on the state of affairs in the financial system.

Standard Chartered (STAN.L) Chief Executive Bill Winters said on Friday Credit Suisse's (CSGN.S) $17 billion Additional Tier 1 bonds wipeout last weekend had "profound" implications for global bank regulations a Fed move to guarantee non-insured deposits was a "moral hazard".

As part of the deal for UBS (UBSG.S) to take over Credit Suisse last weekend, the Swiss regulator determined that Credit Suisse's AT1 bonds would be written down to zero

On top the banking stress, geopolitics muscled in on the banks. The ECB is pressing Austria's Raiffeisen (RBIV.VI) to unwind its highly profitable business in Russia.

Wider markets were lower in Asia and Europe and U.S. stock futures were in the red again ahead of the open.

With less than a 50% chance of another Fed rate rise in this cycle now priced into the futures, almost 80 basis points of rate cuts are now seen by year-end. Two-year Treasury yields skidded below 3.70% - a whopping 140bp below peaks hit a little over two weeks ago.

Torn between the rate cut speculation and potential safe-haven demand from any further blowup in banks, the dollar rose - with fresh European concerns dragging the euro back in particular.

Elsewhere, Block (SQ.N) shares slid almost 15% on Thursday after Hindenburg Research disclosed its short positions in the company. Crypto exchange Coinbase Global (COIN.O) lost 14% as the U.S. Securities and Exchange Commission's threatened to sue the company.

Key developments that may provide direction to U.S. markets later on Friday:

* March flash business surveys for the United States and around the world. U.S. Feb durable goods orders. Canada Jan retail sales

* St. Louis Federal Reserve President James Bullard speaks

* European Union Summit in Brussels, where European Central Bank President Christine Lagarde participates; Bank of England policymaker Catherine Mann speaks in Washington

• Banks fall as fears of a banking crisis spike
• Energy down tracking lower oil prices
• UK Feb retail sales rise unexpectedly
• FTSE 100 down 1.4%, FTSE 250 off 1.0%

London stocks fell on Friday, dragged by energy shares that tracked oil prices lower, while banks extended declines at the end of a turbulent week as fears of a global banking crisis lingered.

The blue-chip FTSE 100 (.FTSE) fell 1.4%, extending losses after a near 1% drop on Thursday.

British banks (.FTNMX301010) lost 2.7%, falling for a third straight session, joining their European peers in Friday's slide.

The markets are nervous about the recurrence of further bank failures, said Edward Stanford, head of European equity strategy at HSBC, adding they do not share those worries.

"The financial sector has stabilized in performance over the last week> We have had banks rescued by other banks and I think what we're getting is kind of aftershocks and concerns."

Barclays (BARC.L) fell 3.4% after HSBC reduced its price target on the stock.

Energy majors Shell (SHEL.L) and BP (BP.L) fell 2.5% and 2.5%, respectively, dragging the broader energy sector (.FTNMX601010) down 2.5%, as oil prices extended losses on worries about a potential oversupply.

Despite Friday's losses, the FTSE 100 is up nearly 1% for the week and on track to post its best weekly performance in five, helped by a brief mid-week relief rally in banking stocks and rising commodity prices.

The more domestically focussed FTSE 250 midcap index (.FTMC) fell 1%, with UK-listed shares of TUI AG down 6.0% after the German tourism group announced a capital increase.

Smiths Group (SMIN.L) rose 1.1% as the industrial technology company raised its annual forecast after first-half profit climbed 27%.

The 'flash' or preliminary reading of the S&P Global/CIPS UK Composite Purchasing Mangers' Index (PMI) came in at 52.2 in March, down from 53.1 in February but above the 50 threshold for growth. Economists had forecast a reading of 52.8.

The reading comes a day after the Bank of England's 25-basis points interest rate hike.

Separately, data showed British retail sales rebounded by 1.2% in February versus expectations of a rise of 0.2%.

At the incredible end to the first quarter for financial markets, rattled by bank turmoil, some stability will be much hoped for in coming days.

But don't bet on it. Regional U.S. banking stocks remain near their lowest levels in two years, Europe is weighing up the fallout from the forced UBS-Credit Suisse tie-up. And data will show how much the market ructions are making recession more likely.

Here's a look at the week ahead in markets from Kevin Buckland in Tokyo, Lewis Krauskopf in New York and Naomi Rovnick, Amanda Cooper and Dhara Ranasinghe in London.

What a quarter. January saw the biggest rush into equities for the first month of the year on record as investors loaded up on cheap stocks. With "peak rates" essentially priced in, bond yields at multi-year highs suddenly looked juicy. The threat of inflation looked less severe and growth more robust. Crisis averted!

Fast-forward a few weeks and a slew of crypto-companies have folded, U.S. regional banks stocks have tanked in the wake of Silicon Valley Bank collapse and 167-year old Credit Suisse has imploded - and the writedown of some of its contingent convertible bonds (CoCos) has whipped market volatility into a 2008-style frenzy.

"Peak rates" is coming faster than many expected, not because inflation has been vanquished, but because central banks are wary of fanning the flames of a credit crunch, right as the banking sector wobbles.

The collapse of Silicon Valley Bank, a 90% share price drop over two weeks in beleaguered First Republic Bank (FRC.N) and a shotgun marriage between Credit Suisse (CSGN.S) and UBS (UBSG.S) to avert a wider crisis: banks have gone on a wild ride. The turmoil may not be over yet.

SNB chief Thomas Jordan reckons the next two weeks will be vital to securing UBS's Credit Suisse takeover. Fed Chair Jerome Powell said banking stress could trigger a credit crunch with "significant" implications for a slowing U.S. economy.

And even as central banks and governments step in to stem signs of panic, there's a new challenge to grapple with - a social media-driven bank run that can be hard to control once rumour and fear take hold.

As Citigroup (C.N) chief executive Jane Fraser puts it, social media is a "complete game-changer" in bank runs.

Credit Suisse's forced takeover by UBS involved $17 billion of Additional Tier 1 debt, shock absorbers if a bank's capital levels fall below a threshold, being wiped out.

Prices of banks' AT1s bonds tumbled following the news. Hong Kong, Singapore, the European Union and Britain stepped into to calm the unease.

Potential legal action is also possible after Swiss authorities ruled that holders of Credit Suisse AT1 bonds would get nothing in the deal. Shareholders, who usually rank below debt investors when a company becomes insolvent, will receive $3.23 billion.

Lawyers are assessing whether there is a case against the Swiss authorities. How this plays out in coming days will be watched closely.

The saga has also rocked the $275 billion AT1 bond market, as investors scrutinise debt prospectuses for clauses that could cast doubt over recovery prospects.

U.S. data that will give insight into the health of the consumer and the state of inflation is timely for investors trying to weigh up whether the economy can stave off a downturn.

The banking crisis has prompted fears that lending will slow, grinding the gears of the economy.

March's reading of consumer confidence is due on Tuesday. The index unexpectedly fell in February.

On Friday, the February personal consumption expenditure index will offer another look at inflation. It accelerated in January, feeding fears about a more hawkish Federal Reserve.

The Fed raised rates by another quarter point on Wednesday, but recast its outlook from a hawkish preoccupation with inflation to a more cautious stance, given market turmoil that has tightened financial conditions.

Incoming Bank of Japan Governor Kazuo Ueda will be watching latest Tokyo inflation data closely.

After all, Ueda has the weight of his predecessor's decade of massive stimulus on his shoulders when he takes over in April.

Expectations are high that he will mastermind a delicate unwinding of yield curve controls and negative interest rates during his tenure, but a key question is when.

Ueda is in no rush, but pressure is building.

The release of Tokyo CPI for March on March 31 is likely to show inflation has topped the BOJ's 2% target for a 10th straight month. And wage inflation shows signs of catching up.

But policymakers say the economic recovery remains fragile. And U.S. and European banks turmoil show how quickly a crisis can surface, giving Ueda even more reason for caution.

India will tax investments in debt mutual funds as short-term capital gains, according to a source with knowledge of the matter, a move that could strip investors of the long-term tax benefits that made such investments popular.

The decision was moved as part of the finance bill amendments passed in parliament on Friday.

The change could spur growth in bank deposits, which have been struggling to keep pace with the demand for credit over the past 12 months that led to a higher cost of funding for lenders.

Mutual funds with less than 35% invested in domestic equities are proposed to be treated as short-term and the indexation benefits that help significantly reduce tax liability available to such funds may be removed prospectively, the source said.

As such, the tax rate applicable would be based on the income tax slab in which the investor falls.

The source did not want to be named as the person is not authorised to speak to media. Finance Ministry did not immediately respond to an email seeking comment.

"The impact would be meaningful, if you are a debt investor, you will compare returns with other debt instruments," said Radhika Gupta, managing director at Edelweiss Asset Management Company.

The mutual fund industry is likely to request the finance ministry to take a relook at the decision, said two mutual fund executives on condition of anonymity.

As of Dec. 31, 2022, assets under management for debt oriented products stood at 12.42 trillion rupees ($151.04 billion), according to industry data.

Currently, investors in debt funds pay income tax on capital gains according to the income tax slab for a holding period of three years. After three years these funds pay either 20% with indexation benefits or 10% without indexation.

The new tax rules would apply to investments made on or after April 1, 2023, impacting new inflows into these funds.

"Debt mutual funds had a favourable tax regime as compared to banks' fixed deposits and small savings," Amit Maheshwari, a tax partner at AKM Global said, adding now debt mutual funds will be taxed at par with other investments. "This could impact debt mutual funds investments in corporate bonds."

This move is targeted mostly towards high net-worth individuals who were using this investment as a tax-saving instrument, Maheshwari said.

Mutual funds provided liquidity to debt investors, and the move is counter-productive to efforts for deepening bond markets in India, said Edelweiss' Gupta.

Indian banks, holding 178 trillion rupees in deposits, may be the beneficiaries if the proposed amendment is approved.

Money from high net-worth individuals and institutions is invested in these funds, which may get diverted to bank deposits, said Suresh Khatanhar, deputy managing director at IDBI Bank.

Mutual funds used this money to fund the working capital needs of corporates. "If they get lesser funds due to end of the arbitrage, it will also be a positive for banks, as this business opportunity will flow to banks for refinance," Khatanhar added.

Bank deposits grew 10.1% over a year ago in the fortnight ended Feb. 24, while credit demand rose 15.5%.

($1 = 82.2300 Indian rupees)

The European Central Bank is pressing Austria's Raiffeisen Bank International (RBIV.VI) to unwind its highly profitable business in Russia, five people with knowledge of the matter told Reuters.

The pressure comes after a top U.S. sanctions official raised concerns about Raiffeisen's business in Russia on a visit to Vienna last month, said another person familiar with the matter, asking not to be named due to its sensitivity.

The push from Washington and the ECB is upping the stakes for Austria and its second-biggest bank, which plays a key role in the Russian economy but also an increasingly contested one as Moscow's year-long war in Ukraine drags on. Many Western companies, including French bank Societe Generale, have already left Russia.

While the ECB is not asking Raiffeisen to leave the country immediately, it wants a plan of action for unwinding the business, two of the people said. One person said such a plan could include the sale or closure of its Russian bank.

"We have been asking banks to keep closely monitoring the business in Russia, and ideally, reduce it and wind it down as much as possible," a spokesperson for the ECB said, adding it had been doing the same with all institutions concerned since Moscow launched its invasion of Ukraine.

Raiffeisen, however, does not intend to present such a plan yet, the people said, and some Austrian government officials see the moves as unwarranted foreign meddling.

A Raiffeisen spokesperson said that it was examining options for its Russia business "including a carefully managed exit" and that it was "expediting" its assessment, adding that it had also reduced lending in the country.

The Austrian lender is now the most important Western bank in Russia, offering a payments lifeline and accounting for roughly one quarter of euro transfers to the country, although other banks, such as Italy's UniCredit, are still present.

ECB officials are reluctant to pressure Raiffeisen into an immediate sale, fearing the financial hit it could trigger, one person said, after a week of global banking turmoil.

A spokesperson for Austria's finance ministry said that while there could be no return to the status quo in relations with Russia, "most" international companies, including banks remained there.

"There is substantial trade going on between Russia and the rest of the world in commodities like grain, fertilisers, oil, gas, nickel and other metals, which...require payments," said the spokesperson.

In January, the U.S. sanctions authority launched an inquiry into Raiffeisen over its business related to Russia.

Two people with direct knowledge of the matter told Reuters that the probe concerned potential breaches of Western sanctions. Raiffeisen said the inquiry was of a general nature.

The inquiry, which has strained relations between Vienna and Washington, could prove perilous for Austria, which had modelled itself as a bridge between east and west, turning Vienna into a magnet for Russian money.

James O'Brien, a senior sanctions official with the U.S. Department of State, spelt out American concerns over Raiffeisen and its business with Russia during discussions in Vienna in February, one of the people said.

"Ambassador O'Brien and Austrians discussed our close cooperation on sanctions in response to Russia's illegal further invasion of Ukraine," a State Department spokesperson said when asked about the visit.

The Raiffeisen spokesperson said that the bank was in the "early stages" of collecting information to respond to the inquiry letter from the U.S. Treasury Department's Office of Foreign Assets Control (OFAC).

During Austrian President Alexander Van der Bellen's visit to Kyiv last month, Ukrainian President Volodymyr Zelenskiy criticised Austrian businesses still operating in Russia, singling out Raiffeisen, for supporting Moscow.

The bank has also been sharply criticised by investors after participating in a Russian scheme to grant loan payment holidays to troops fighting in Ukraine.

Although the stakes are high, some Austrian officials hope they can hold out long enough for a negotiated resolution to the war, allowing for a resumption of normal business with Russia, three of the people familiar with the matter said.

Austria's foreign minister Alexander Schallenberg has said that while it is "legitimate" for U.S. authorities to approach Raiffeisen, Austria had primary responsibility for enforcing sanctions.

U.S. authorities can go as far as preventing a bank from processing dollar transactions, a step that would deal a serious blow to Raiffeisen and that euro zone regulators fear could destabilise the bank.

Latvia's ABLV Bank quickly unravelled after being placed under U.S. sanctions in 2018 due to concerns about illicit activity connected in large part to Russia.

Some Austrian lawmakers are also critical of the government's stance.

"Supervisory authorities must examine the risks from Raiffeisen's activity and that from day one of the war," Stephanie Krisper, a lawmaker from the liberal Neos opposition party told Reuters last week.

"For many years, connections to Moscow permeated our political system - now, the economic and political dependence on Russia has finally become visible."

Naureen Ahsan earns more than twice the average wage in Pakistan, but the school administrator says she has no choice but to homeschool her daughters and delay their London-board certified final exams because she can't afford their education.

Like most people in the nation of 220 million, Ahsan and her husband, who owns a car servicing business, are struggling to cope with a surge in living costs triggered by the government's devaluing the currency and removing subsidies to pave the way for the latest tranche of an International Monetary Fund (IMF) bailout needed to stave off economic collapse.

Pakistan is no stranger to economic crises - this is its fifth IMF bailout since 1997 - but economists say the latest measures, which include higher taxes and fuel costs, are hurting educated professionals. Many say they are cutting down on necessities to make ends meet.

"We don't eat out any more," Ahsan told Reuters. "We no longer buy meat, fish. I've cut down on tissue paper and detergent. We don't see friends, we don't give gifts. Occasionally, we scream at each other."

The government-mandated minimum wage is about 25,000 rupees, but with inflation at a record 31.5% in February, its highest rate in nearly 50 years, many people who earn much more than that say their salaries do not last the month.

Abhi Salary, one of Pakistan's biggest fintech firms, which allows its 200,000 or so subscribers to withdraw wages in advance, says transactions have increased by more than a fifth every month for the last three months. Most people spend two-thirds of the money on groceries as they rush to stock up before prices rise again, Abhi CEO Omair Ansari said.

"Unfortunately the poor in Pakistan are left with nothing to lose," said Abid Suleri, the Sustainable Development Policy Institute of Pakistan, an economic think tank. "Educated professionals... find their purchasing power and savings eroded, and daily consumption either unaffordable or out of reach."

Ramadan, which began this week, is likely to add to price pressures in Muslim-majority Pakistan. Analysts predict inflation to rise to at least 35% a month in March and April.

During the holy month, Muslims traditionally break their daylong fast with special foods and at large family gatherings, culminating in the Eid al-Fitr festivities. This year, for many people, Ramadan means more belt tightening.

"We're cutting down on the number of meals and the food," said Ahmed, a senior manager at a multinational company who declined to give his family name because he was worried about possible backlash from his employer. "It will be more difficult to buy sweets and gifts for Eid, which is a break from our family tradition."

The economic turmoil is driving some professionals out of the country. Khaliq, a doctor who also didn't want to be give his full name because he was embarrassed by his financial situation, said he and his wife, who is also a doctor, work as much as they can to save up for exams to qualify them to work in Britain.

"We think twice about eating out or using the car," he said, adding that the weakening rupee was making the cost of their exam, which is in British pounds, higher by the day. "We plan to pass the exams and move out ASAP."

($1 = 282.7200 Pakistani rupees)

The dollar was pinned near seven-week lows on Friday as nervousness over banks kept investors skittish and traders assessed the Federal Reserve's chances of a pause to interest rate hikes.

The dollar index , which measures the currency against six major rivals, fell 0.097% at 102.48, just above the seven-week low of 101.91 it touched on Thursday. The index eked out a small gain on Thursday, its first in six trading days.

The Fed on Wednesday raised interest rates by 25 basis points, as expected, but took a cautious stance on the outlook because of banking sector turmoil even as Fed Chair Jerome Powell kept the door open on further rate increases if necessary.

U.S. Treasury Secretary Janet Yellen on Thursday reiterated that she was prepared to take further action to ensure that Americans' bank deposits stayed safe, to ease investor nerves.

Markets are pricing in a 68% chance of the Fed standing pat on interest rates in the next meeting and a 32% chance of another 25 bps hike, according to CME FedWatch tool.

Banking stocks have been battered in the last two weeks following the sudden failures of two regional U.S. lenders and the emergency sale of embattled Swiss bank Credit Suisse to rival UBS.

Christopher Wong, currency strategist at OCBC, said the FX world seemed to suggest a bout of risk aversion with safe haven proxies, gold and yen outperforming and most other currencies softer.

"I think with sentiment still fragile, price action can swing both ways depending on whether there are any contagion surprises."

The yen strengthened 0.51% to 130.16 per dollar, having touched a six-week high of 130.055 earlier in the session. Japan's core consumer inflation slowed in February, but an index stripping away energy costs hit a four-decade high, data showed on Friday.

With inflation still exceeding the Bank of Japan's 2% target, the data will keep alive market expectations of a near-term tweak to its bond yield control policy, according to analysts.

Meanwhile, the Bank of England on Thursday raised interest rates by 25 bps, but said a surprise resurgence in inflation would probably fade fast, stoking speculation it had ended its run of hikes.

Sterling was flat at $1.2285, having touched a seven week high of $1.2341 on Thursday in volatile trading. The euro was up 0.03% at $1.0833, just a shade below the seven-week high of $1.0930 it touched on Thursday.

Investor focus will be on the flash Purchasing Managers' Index (PMI) data for March from the Eurozone, Germany, France and the UK due later in the day to gauge the state of the European economy.

"The market will be looking at PMI releases around the globe for an update on not just activity but what businesses are reporting on demand, supply chain disinflation, wages, and pricing power," said Rodrigo Catril, a senior currency strategist at currency strategist at National Australia Bank.

The Australian dollar rose 0.07% to $0.669, while the kiwi fell 0.14% to $0.624.

Currency bid prices at 0550 GMT

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Volatilities

Tokyo Forex market info from BOJ

• Swiss-centric crisis sees Swiss franc lose favour
• Investors shelter elsewhere, boosting gold, yen, bonds
• Swissie risk concentrated in Swiss economy - analyst
• Swiss franc's days as investment refuge are not over
• But currency is not an 'all-weather' haven - strategist

The Swiss franc hasn't lived up to its safe-haven reputation during the Credit Suisse collapse, as investors have sought shelter elsewhere, bringing more of a boost to the value of the gold in Switzerland's bullion vaults than to its currency.

Money managers ditched the Swiss franc at the fastest rate in two years last week in the run-up to the dramatic takeover of Credit Suisse (CSGN.S) by UBS (UBSG.S).

The Swissie, often used as a refuge in times of market stress or volatility, lost 0.9% against the dollar in the week after the Swiss finance department said regulators were closely monitoring the situation at Credit Suisse on March 13.

In that same time, Japan's yen, which is also seen as a refuge in times of tumult, rose 2.6% against the dollar .

Gold , another traditional safe haven, rose over 5% in the week after March 13 to above $2,000 an ounce, its highest in over a year, while government bonds , saw some of their biggest inflows in decades.

"It definitely is to do with developments in the banking sector," said Kirstine Kundby-Nielsen, FX analyst at Danske Bank, on why the franc wasn't stronger.

"You still have some of the safe-haven hedging properties in the Swiss franc but it can only take so much when the risk ends up being so concentrated in the Swiss economy and the Swiss financial sector," Kundby-Nielsen added.

Speculators added over $800 million to their bearish positions on the Swiss franc in the week to March 21, according to data from the Commodities Futures Trading Commission, the most in one week since early March 2021.

On Sunday, the Swiss National Bank (SNB) orchestrated a $3 billion deal for UBS to buy rival Credit Suisse, backed by a massive guarantee of up to $260 billion, a third of the country's national output, in state and central bank support.

"If it hadn't been Credit Suisse, but any other European bank getting into trouble, you would have seen the Swiss franc rising sharply because it would have been the safe haven for European risk," said Francesco Pesole, FX strategist at ING.

Research from the SNB in 2016 found that in previous crises, flows into Switzerland and the franc were driven by weaknesses elsewhere.

Futures data shows speculators poured money into bullish bets on the Swissie after the dot-com bubble burst in early 2000, after the 9/11 attacks in 2001, and again in 2008 and 2011-2012, during the euro zone debt crisis and once more during the COVID crisis.

During the collapse of Lehman Brothers in 2008, net inflows were driven by a "substantial retrenchment" into the domestic market by Swiss banks, while in the euro area banking crisis from mid-2011, the SNB found that moves away from the euro and into the franc were driven by foreign banks moving assets from the euro area branches into their Swiss branches.

"The current setup doesn't argue for either of those things. U.S. bank stresses have been contained in regional banks and euro area banks have so far been relatively unscathed," said Michael Cahill, senior FX strategist at Goldman Sachs.

"The franc is not an 'all-weather' safe haven and so far we've not had the type of market pressures that would typically lead to franc appreciation," he said.

It's one thing for the franc to have lost some favour among investors during a Swiss-centric crisis, but quite another to suggest its days as a safe haven are numbered.

For the Swiss franc to lose its status as a safe haven, FX strategists at Barclays say "fundamental changes" in the country's balance sheet would be required, with the share of Swiss-issued assets in external liabilities required to fall via "large and sustained" outflows.

"This would lead to an increase in domestic interest rates, thereby increasing the yield Switzerland's external liabilities pay and further weighing on the country's yield differential," Barclays FX strategists, led by Lefteris Farmakis, said.

"In such a scenario, the SNB would likely attempt to smooth out the transition by cushioning capital outflows," Farmakis said.

Barclays said the odds of a "sudden stop" episode are extremely low despite the current banking turmoil, but a more difficult question to answer is whether confidence in the financial system has been eroded to a degree that a "slow burn" episode may have started.

"Fortunately," Barclays says, "this scenario has limited repercussions for the franc over the foreseeable future."

Wealth management firms are expanding operations aggressively in Hong Kong to meet pent-up demand from rich Chinese individuals looking to invest more money overseas after three years of COVID-19 curbs, industry sources said.

High- and ultra-high net worth families in China are seeking to diversify their investments as they are finally able to travel and as they chase alternatives to a depressed property market at home.

This week has been exceptionally busy, sources said, with mainland visitors flocking to the first Art Basel fair in Hong Kong since China's COVID-19 curbs were lifted.

"Reopening means robust growth in our international business. Client inquiries for offshore investment increased 155% in the first quarter year on year," Oscar Liu, CEO of the wealth management department at Noah International told Reuters.

Noah Holdings (NOAH.N), the largest independent wealth management firm in China, was among five private banks and wealth management firms Reuters talked to that said they held client events in the city and organised private art tours.

They are chasing some of China's 2.1 million "high net wealth" families, each with net worth more than 10 million yuan ($1.46 million), and 138,000 ultra-high net worth families with over 100 million yuan as of January 2022, according to data from Hurun Research Institute published this month.

Offshore investment enquiries jumped by a third in March over the previous month, Liu said.

Shanghai-based Noah, which manages $22 billion in assets, plans to expand its front office in Hong Kong five-fold from about 20 to 100 relationship managers in 2023, hiring locally and transferring personnel from mainland China.

The wealth manager's expansion plan is apart from other middle and back office staffing. Liu said overseas business was expected to make up over 30% of Noah Holding's total assets under management in 2023, up from 20% currently.

Hywin Holdings (HYW.O), another Chinese wealth manager, invited 30 ultra-high-net worth clients to workshops, fund manager visits and even a yacht party in Hong Kong last week.

Nick Xiao, Hywin International's CEO, said the reopening had not only made it easier for wealthy Chinese investors to access global products, but had also revived interest in Hong Kong as a hub for financing, investment and a base for accessing mainland markets.

The firm intends to recruit up to 10 private bankers in 2023 and add staff in supporting roles, Xiao said.

Dong, an investment banker in Shenzhen, plans to come to Hong Kong in the next few months to open a bank account and buy insurance products.

"Holding dollar assets provides a lot of flexibility. It can be used in the future to buy overseas property or to pay tuition for children studying abroad," said Dong, who prefers to go by his family name.

To tap such rapidly growing demand from mainland investors, HSBC Bank (HSBA.L) launched a pilot program to keep three Hong Kong branches, including wealth management centres, open seven days a week.

The Hong Kong government, too, organised a Wealth for Good summit on Friday to attract global family offices to the city and away from Singapore, which had become the preferred destination for wealthy entrepreneurs during Hong Kong's strict pandemic restrictions.

The government also issued a policy statement on Friday, emphasising new measures including tax cuts for family offices and establishment of art storage facilities to support "a vibrant ecosystem for global family offices and asset owners".

Chinese financial institutions are vying for this growing wealth management business in Hong Kong.

Chinese Everbright Bank and Hua Xia Bank set up private banking departments in Hong Kong in the past few months, according to sources familiar with their plans.

($1 = 6.8450 Chinese yuan renminbi)

ValueAct Capital informed Seven & i Holdings (3382.T) on Friday it would lobby to remove four directors from the Japanese convenience store operator's 14-member board, citing "a failed corporate strategy".

ValueAct, which owns a 4.4% stake of Seven & i, had called on the company's management in January to spin off its 7-Eleven convenience store chain. The fund has been invested in the company and making proposals since 2021.

In a letter reviewed by Reuters, the hedge fund said it had become frustrated that its engagement with Seven & i over several months had not led to the company adopting a strategy to grow faster and improve profitability and its market valuation.

A "conglomerate discount has persisted" because the management of most of the Seven & i businesses has repeatedly failed in spite of promises for "synergies" and structural reform, the letter said.

The letter did not state how ValueAct would seek to oust the four directors, whom it did not publicly identify. The fund nominated four director candidates, who also were not named.

Company President Ryuichi Isaka is among the directors ValueAct is seeking to remove, the Nikkei newspaper said.

In a statement, Seven & i said it had received the ValueAct letter and that "the Board of Directors will proceed to scrutinise and consider the contents of the proposal".

A tax-free spin-off of 7-Eleven could be completed through a listing on the Tokyo Stock Exchange in roughly a year, ValueAct said in January.

Seven & i announced this month it will close an additional 14 Ito-Yokado supermarket stores in Japan and fully exit its apparel business as part of a structural reform plan.

Six new directors joined Seven & i's board last year. ValueAct supported those newcomers at the time.

ValueAct blames the four directors it is now seeking to remove for "governance failures", the letter said.

The directors "failed to disclose a reported acquisition proposal to the Company in 2020", failed to conduct an objective succession review, and did not conduct an independent strategic review in line with governance best practices, ValueAct said.

Seven & i shares rose 1% in Tokyo versus a 0.2% decline in the benchmark Nikkei (.N225) index.

ValueAct, which is led by Mason Morfit, won a board seat this year at cloud computing company Salesforce (CRM.N).

A look at the day ahead in European and global markets from Wayne Cole

It's been a slow day in Asian markets, no doubt with everyone tired and emotional after another rough week.

Japan's flash PMI edged up to a still-contractionary 48.6, while services fared a bit better at 54.2. Analysts suspect a recession is still likely, but that's hardly a novelty for Japan.

Presumably, European and U.S. PMIs will have more bearing for monetary policy and markets.

Japanese CPI growth slowed to 3.3% y/y as expected thanks to government subsidies on energy, but inflation ex-food and energy climbed to its highest since 1982 at 3.5%.

Normally that might add to pressure for the BOJ to water down its yield curve control, but it's also less of a burning issue given the recent plunge in global bond yields.

It was notable that U.S. two-year Treasuries kept almost all of their massive gains with yields at 3.82%, having fallen an astonishing 126 basis points in 11 sessions and crushed a host of short positions in the process.

The whole yield curve from one month to 30 years is now below the overnight Fed rate, which is something you see only once in a very blue moon. While the 2-10 curve has dis-inverted markedly, that's not a sign recession is less likely. Rather, history shows the curve steepens like this just before recession arrives, as short-term yields dive in anticipation of rate cuts.

Fed futures are currently 65% for no hike in May and 85% for a rate cut in July, a U-turn that the Fed is surely hoping to avoid. And it would be extremely unlikely were it just down to inflation and the economy. But there's the banks.

Treasury Secretary Janet Yellen on Thursday tried to reassure markets that they would backstop depositors in a crisis, and it looks like there are bidders for some chunks of Silicon Valley Bank.

Yet the strains are showing in the Fed books as borrowing at its discount window as of Wednesday was a hefty $110.2 billion. Lending from the Fed's new Bank Term Funding Program ballooned to $53.7 billion, suggesting some institutions simply can't borrow anywhere else.

Even loans to foreign central banks surged to $60 billion, implying the supply of dollars through the interbank system is too expensive or just not available for some offshore banks. The Fed really is the lender of last resort.

The ECB is expected to reassure European Union leaders on Friday that euro zone banks are safe, while also pushing them to adopt a full EU deposit insurance scheme.

Key developments that could influence markets on Friday:

- Global PMIs, UK retail sales

- ECB President Lagarde is at the European Council meeting

- Bundesbank President Nagel speaks on inflation and the labour market, so expect fire and brimstone

- Federal Reserve Bank of St. Louis President Bullard gives a cosy fireside chat on the U.S. economy and monetary policy

Australia-listed shares of Block Inc , led by Twitter co-founder Jack Dorsey, plunged as much as 20% on Friday after Hindenburg Research alleged the payments firm overstated its user numbers and understated its customer acquisition costs.

Block said the report was "factually inaccurate and misleading" and that it was exploring legal action against the short-seller.

Shares of the San Francisco-headquartered company, which has a secondary listing in Australia, led losses in the country's benchmark ASX 200 Index (.AXJO). They hit their lowest since November 2022 at A$86.30 before edging up slightly to $88.31.

Australia's corporate watchdog, the Securities and Investment Commission, declined to comment. A source not authorised to speak with media said the matter was for U.S. regulators. The Australian Stock Exchange noted Block's primary listing was in the U.S. and declined to comment further.

Block's U.S. shares (SQ.N) fell 15% on Thursday.

Hindenburg's report, which was behind a market rout of more than $100 billion in India's Adani Group earlier this year, said it found former Block employees estimated 40% to 75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.

The move is seen as a challenge to Dorsey, who co-founded Block in 2009 in his San Francisco apartment with a goal to shake up the credit card industry. He is the company's largest shareholder with a stake of around 8%.

Investors have been in a "sell first, ask questions later" mode since the U.S. banking crisis "so this seems to be a well-timed attack by Hindenburg which puts Block on the chopping block," said Matt Simpson, senior market analyst at City Index.

Block's $29 billion buyout of the Australian buy-now-pay-later firm Afterpay "was designed in a way that avoided responsible lending rules in its native Australia," the U.S. short-seller said in its report.

"Hindenburg's attack on Block will be very closely watched by both regulators and investors, given the current banking turmoil has severely disrupted market sentiment," said Glenn Yin, head of research and analysis, AETOS Capital Group

Markets will take time to digest the claims made under the short-seller's two-year investigation, Yin added.

(This story has been refiled to correct a typographical error in paragraph 6)

Hong Kong needs to watch carefully for any further "spillover" from U.S. regional banks, although the city has very little exposure to the situation in European and U.S. financial institutions, the Hong Kong Monetary Authority said on Friday.

The failure of two U.S. banks and a crisis at Credit Suisse have rattled financial markets over the past week and sent shockwaves through the global banking system. read more

Eddie Yue, the chief of Hong Kong's de facto central bank, said the city has little exposure to Additional Tier 1 (AT1) bonds - a type of contingent convertible debt that are part of the capital buffers that regulators require banks to hold to protect themselves in times of market turmoil.

Asian policymakers are scrambling to calm investor nerves about AT1 bonds after holdings of such Credit Suisse bonds were written down to zero, but the ongoing market turbulence is likely to keep a lid on fresh debt issuance.

"The recent events in the U.S. and Europe have very little impact on Hong Kong," Yue said.

"The situation is largely stabilised, but we still need to watch whether there will be further spillover, especially to the other U.S. regional banks."

Hong Kong and global banks needed to be prepared for any further volatility in the market, he added.

Do Kwon, the cryptocurrency entrepreneur behind two digital currencies that lost an estimated $40 billion or more last year, has been charged with fraud by U.S. prosecutors.

An eight-count indictment against Kwon was made public in the U.S. District Court in Manhattan, several hours after news of his arrest earlier Thursday in Montenegro.

Lawyers for Kwon in the United States did not immediately respond to requests for comment after business hours.

Thursday's indictment charges Kwon, a South Korean national who co-founded Terraform Labs and developed the TerraUSD and Luna currencies, with two counts each of securities fraud, wire fraud, commodities fraud and conspiracy.

The criminal case follows related U.S. Securities and Exchange Commission civil charges against Kwon and Terraform last month.

Kwon had been a fugitive for several months, and South Korean authorities issued an arrest warrant for him last September.

South Korean police said on Friday that the identity of the suspect arrested in Montenegro had been confirmed as Kwon after his fingerprints matched the information held by the country's National Police Agency (KNPA).

"This has been shared with the Seoul Southern District Prosecutors' Office and Interpol in Montenegro," one official at the KNPA said.

Prosecutors will work with other institutions to carry out a swift repatriation, a spokesperson for the country's prosecution service said.

Montenegro's interior ministry said police detained a person thought to be Kwon and a second suspect, who were trying to board a flight to Dubai at Podgorica airport.

Police found forged passports of Costa Rica and Belgium during the encounter, the ministry said.

"The person is suspected of being one of the most wanted fugitives, South Korean national Do Kwon, a co-founder and CEO of the Singapore-based Terraform Labs," Interior Minister Filip Adzic wrote on Twitter.

"The former cryptocurrency king who is behind losses of over $40 billion, has been apprehended at the Podgorica airport with forged documents," Adzic added.

TerraUSD was a so-called "stablecoin" designed to maintain a constant $1 price, while Luna's value fluctuated.

But authorities have said TerraUSD and Luna were paired, such that a decline in one could take down the other.

They also said Kwon misrepresented the stability of TerraUSD, once among the top 10 cryptocurrencies by market value.

Both currencies crashed last May, with TerraUSD's price sinking to less than one penny.

In its civil case, the SEC accused Kwon and Terraform of "orchestrating a multi-billion dollar crypto asset securities fraud.

"We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors," SEC Chair Gary Gensler said in a statement at the time.

U.S. Treasury Secretary Janet Yellen sought to reassure jittery investors that American bank deposits were safe and promised policymakers had more firepower to battle any crisis even as bank stocks resumed their slide on Thursday.

Investors have dumped banking stocks globally over the past two weeks, with rapid interest rate hikes to rein in inflation blamed by some as the root cause of the debacle. U.S. bank stocks slid again on Thursday, pushing the S&P 500 banks index (.SPXBK) down to its lowest close since November 2020.

U.S. lender Silicon Valley Bank's collapse over bond-related losses tied to a surge in interest rates was the initial trigger for the turmoil, and JPMorgan Chase & Co analysts estimate the "most vulnerable" U.S. banks likely lost a total of about $1 trillion in deposits since last year. Half of the outflows occurred in March after SVB's collapse, they said.

Policymakers have stressed the turmoil is different from the financial crisis 15 years ago, and Yellen repeated that she was prepared to take more action to protect bank deposits if needed - one of the issues investors are concerned about.

"As I have said, we have used important tools to act quickly to prevent contagion. And they are tools we could use again," Yellen said in prepared remarks to the U.S. House of Representatives Appropriations subcommittee hearing.

"The strong actions we have taken ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted."

In Europe, the Bank of England became the latest central bank to hike rates this week.

After its eleventh straight hike, the BoE said it had noted the "large and volatile moves" in financial markets, but that Britain's banking system remained resilient.

"We have learnt a lot of lessons from the financial crisis. Of course, we keep learning lessons, but I’m confident that the banks in (Britain) are in a much stronger position," BoE governor Andrew Bailey told broadcasters.

While some of the panic over the fate of banks has abated, investors are now adjusting to more challenging economic and lending conditions ahead.

The index of top European banks (.SX7P) fell 2.5%, with German banking giants Deutsche Bank (DBKGn.DE) and Commerzbank (CBKG.DE) falling 3.2% and 4.1%, respectively. London-headquartered HSBC (HSBA.L) dropped 2.9%.

U.S. banking shares initially rose on Thursday with traders citing the Fed's hints that it could soon pause further increases in borrowing costs as a source of some relief, but later turned negative.

Troubled U.S. regional lender First Republic Bank (FRC.N), which is among banks speaking to peers and investment firms about potential deals, closed down 6%. About 90% of the bank's stock market value has evaporated this month, leaving it with a market capitalization of just over $2 billion.

"Despite the strong efforts to protect, particularly First Republic, the crisis continues and investors are left wondering what is it that I'm not seeing," said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

Other U.S. banks under the microscope after the demise of SVB and Signature Bank (SBNY.O) added to recent losses. PacWest Bancorp (PACW.O), Comerica (CMA.N) and Zion Bancorp (ZION.O) each tumbled more than 8%.

Truist Securities cut its price targets on regional banks including Zions and Comerica, warning of slower growth and higher credit costs.

The S&P 500 banks index (.SPXBK), which closed down 1.2%, has now fallen over 40% from its record high in February 2022.

Earlier on Thursday, the Swiss National Bank raised its benchmark interest rate by 50 basis points and said the takeover of Credit Suisse - the biggest name ensnared by recent turmoil - by its Swiss rival UBS (UBSG.S) had averted a financial disaster.

To stop investor panic from spreading, the Swiss bank was rushed into the deal on Sunday with UBS Group AG, which along with Swiss authorities is racing to close the takeover within as little as a month, according to two sources with knowledge of the plans.

Spokespeople for UBS and Credit Suisse declined to comment.

"At this moment the focus has to be that we can maintain financial stability and that the closing of the deal is smooth and fast," SNB Chair Thomas Jordan told a news conference.

Separately, Credit Suisse and UBS are under scrutiny in a U.S. Department of Justice probe into whether financial professionals helped Russian oligarchs evade sanctions, Bloomberg News reported on Thursday.

The rescue of Credit Suisse has ignited broader concerns about investors' exposure to a fragile banking sector. The decision to prioritise shareholders over Additional Tier 1 (AT1) bondholders rattled the $275 billion AT1 bond market and some Credit Suisse AT1 bondholders were seeking legal advice.

The convertible bonds were designed to be invoked during rescues to prevent the costs of bailouts falling onto taxpayers as it happened during the global financial crisis in 2008.

Politicians are also wary of public perceptions that banks are being bailed out again, after anger over the sector's costly rescue in 2008. The U.S. Senate Banking Committee called on the former chief executives of SVB and Signature Bank to testify as lawmakers weigh possible action.

Citizens Financial Group Inc (CFG.N) is working on a bid to acquire the private banking business of Silicon Valley Bank, two people familiar with the matter said. The FDIC, which now controls the Silicon Valley Bank assets, and Citizens Financial declined to comment.

($1 = 0.9280 Swiss franc)

Some of the most prominent rainmakers in the world of corporate mergers struck a note of optimism about dealmaking on Thursday, even as they acknowledged a volatile economic backdrop had significantly impacted M&A activity.

The banking crisis that has emerged in the wake of Silicon Valley Bank's failure has shaken boardroom confidence already dented by fears over an economic slowdown, investment bankers and deal lawyers told the Tulane Corporate Law Institute conference in New Orleans.

"There is a brick wall in front of M&A activity," said Anu Aiyengar, global head of M&A at JPMorgan Chase & Co (JPM.N).

"When you look at what's happening in China, geopolitical tensions, interests rates, bank runs, liquidity crisis, increased chances of recession - throw everything together and it seems quite formidable."

With financing having dried up for private equity-backed leveraged buyouts, buyers will have no option but to put up a lot of equity to get deals done in the near term, the conference participants said.

"We are in for choppiness," said Scott Barshay, chair of the corporate department at law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP. "There is a giant struggle right now. And it's a giant struggle because there's a lot of dry powder for the equity part of private equity deals. What there's not is a lot of leverage for the leverage part of the leveraged buyout."

M&A volumes declined considerably last year amid fears of faster interest rate hikes, possible recession, weaker credit markets and a tumbling stock market.

The total value of deals last year fell 37% from a record high in 2021 to $3.61 trillion, according to Refinitiv data. That is the biggest year-over-year percentage drop since 2001 when the U.S. economy fell into recession.

Global dealmaking this year through mid-March has tumbled nearly 50% in terms of dollar volumes from a year ago and is off nearly 30% in terms of the number of deals being done, according to Refinitiv.

Dealmakers, however, said they expect the impact from the banking crisis on broader M&A activity to be contained, as most of the worst affected regional banks are not major advisers or lenders on deals.

The technology sector remains the best hunting ground for corporate acquirers or private equity financiers, deal advisors said.

"There is really no part of the world that allows you to have an organic growth trajectory that lets you meet the market possible for trading at a premium valuation, which means you have to look at inorganic growth opportunities," said Aiyengar.

Dealmakers also predicted an increase in unsolicited approaches from cash-flush buyers who are taking advantage of a drop in valuations of potential targets, who are now more willing to entertain bids than they were a few months ago.

Increased regulatory uncertainty due to greater scrutiny on deals from antitrust regulators also is likely to impede the speed of deals getting across the finish line, with dealmakers criticizing the adversarial stance taken by the Federal Trade Commission and the Department of Justice.

"In this very narrow context of who's going to be running the DOJ antitrust division and the FTC in the future, our business will be a lot better if it's somebody else," said Barshay.

• Feb core CPI up 3.1% yr/yr, matches forecast
• Index excluding fresh food, fuel costs rises 3.5% in Feb
• Data shows cost-push pressure from raw materials easing

Japan's core consumer inflation slowed sharply in February from a 41-year high in the previous month, government data showed on Friday, as the effect of government subsidies to curb utility bills rolled in.

But inflation remained well above the Bank of Japan's 2% target as companies continued to pass on rising costs to consumers, keeping alive market expectations of a near-term tweak to its ultra-loose monetary policy.

The core consumer price index (CPI), which excludes volatile fresh food but includes oil products, rose 3.1% in February from a year earlier, data showed, matching a median market forecast.

The pace of increase slowed sharply from a 4.2% rise seen in January, which was the highest reading since December 1981 when the Middle East crisis pushed Japan's inflation to 4%.

In a sign of simmering cost-push pressure, the so-called "core-core" CPI, which strips away both fresh food and fuel costs, was up 3.5% in February from a year earlier. It accelerated from a 3.2% gain in January and marked the fastest year-on-year increase since January 1982, the data showed.

BOJ Governor Haruhiko Kuroda has repeatedly said inflation will slow back below the bank's 2% target later this year as the effect of past rises in fuel and raw material costs dissipate.

But some BOJ policymakers have flagged the chance inflation could exceed initial expectations, as price hikes and wage gains show sign of broadening.

Markets are rife with speculation the BOJ will phase out or end its bond yield control policy under incoming governor Kazuo Ueda, who succeeds incumbent Haruhiko Kuroda when his term ends in April.

The BOJ has pledged to keep ultra-loose policy until bigger wage hikes accompany rising inflation to ensure Japan can meet the bank's 2% price target in a sustainable manner.

In closely watched annual labour talks with union earlier this month, top Japanese companies agreed to their largest pay increases in a quarter century in a sign the country may be finally shaking off the public's sticky deflationary mindset.

Citizens Financial Group Inc (CFG.N) is working on a bid to acquire the private banking business of failed Silicon Valley Bank, two people familiar with the matter said on Thursday.

Citizens, one of the largest U.S. regional banks, is preparing to submit an offer in the auction of the business, which is called SVB Private, the sources said.

The auction is being handled by the Federal Deposit Insurance Corporation (FDIC), which has set a Friday deadline for offers, the sources added.

The sources cautioned that no deal is certain and asked not to be identified discussing confidential deliberations.

The FDIC, which now controls the Silicon Valley Bank assets, and Citizens Financial declined to comment.

The FDIC tried to sell SVB Private alongside Silicon Valley Bank over the last two weekends after the technology-focused lender was taken over by regulators on March 10. But it failed to clinch a deal to sell them both together.

It has since asked for separate offers for SVB Private and Silicon Valley Bank by March 24. SVB Financial Group (SIVB.O), the former parent of Silicon Valley Bank which filed for bankruptcy protection last week, is not part of the process.

SVB Private provides banking, wealth management and trust services to high-net worth individuals. A big part of it comprises Boston Private, a wealth manager acquired by Silicon Valley Bank in 2021.

Citizens Financial has been expanding through acquisitions. It completed the purchase of the U.S. East Coast branch network of HSBC Holdings Plc (HSBA.L) in February 2022, and two months later closed a deal to buy Investors Bancorp, which added to its presence between New York City and Philadelphia.

The Providence, Rhode Island-based lender is the third-largest bank by deposits in the state of Massachusetts, according to regulatory data. It has a presence in 14 states and the District of Columbia, and is ranked among the top 15 banks nationally by deposits.

Reuters has reported that another regional lender, First Citizens BancShares (FCNCA.O), has been pursuing a bid for the entirety of the Silicon Valley Bank assets up for sale by the FDIC.

U.S. Treasury Secretary Janet Yellen reiterated on Thursday that she was prepared to take further action to ensure that Americans' bank deposits stay safe amid turmoil in the banking system.

"As I have said, we have used important tools to act quickly to prevent contagion," Yellen said in remarks to the U.S. House of Representatives Appropriations subcommittee hearing.

"These are tools we could use again for an institution of any size if we judged its failure would pose a systemic risk," she added.

Silicon Valley Bank (SIVB.O) was taken over by federal regulators on March 10, followed days later by Signature Bank (SBNY.O). Multiple federal agencies, including the U.S. Department of Justice and the Securities and Exchange Commission, are probing SVB.

Global banking markets have been skittish and investors remain fearful of wider economic repercussions.

Given that Congress is divided in control, with Republicans holding a majority in the House of Representatives and President Joe Biden's fellow Democrats leading the Senate, any new legislation in light of the banking crisis would require bipartisan support.

House Financial Services Committee Chairman Patrick McHenry, a Republican, said on Wednesday it was too early to tell if new legislation was necessary after the failures of the two banks.

Biden said last week the banking crisis has calmed down, and promised Americans that their deposits are safe.

On the broader state of the U.S. economy, Yellen said the labor market was "extremely tight," which was contributing to inflation.

However, she also added that supply chain pressures and shipping costs were coming down and were eventually likely to bring down inflation.

Separately on the issue of the debt ceiling, the Treasury secretary said that a U.S. debt default would undermine the dollar's reserve currency status and that a failure to raise the debt ceiling would lead to a recession or worse.

Republicans in the U.S. House of Representatives are working on a "term sheet" of conditions they would want Democrats to agree to in exchange for voting to raise the federal government's $31.4 trillion debt ceiling later this year, House Budget Committee Chairman Jodey Arrington said on Thursday.

Yellen also told lawmakers Russia and China have the motivation to try to develop an alternative to the U.S. dollar but it would be "tremendously difficult" for them to do so.

"I certainly want to see the dollar remain as the world's reserve currency and there is a motivation that Russia and China have to try to develop another system that avoids the use of the dollar," Yellen said.

A look at the day ahead in Asian markets from Jamie McGeever.

Asian markets round off the week with Japanese inflation and PMI data likely to be the main local drivers on Friday, offering direction that is unlikely to come from yet another choppy day in U.S. markets on Thursday.

Wall Street rose - although ended up off its highs - but bank stocks slumped to the lowest since 2020; key parts of the U.S. yield curve steepened, but the three month/10-year segment is its flattest and most inverted since 1981; market-based inflation expectations fell, but so did Fed rate expectations.

Rates markets are now pricing in around 100 basis points of Fed easing this year, something Fed Chair Jerome Powell said on Wednesday is definitely not the central bank's base case scenario.

The uncertainty is rooted in what impact the banking crisis will have on U.S. credit conditions in the coming months, and by extension on economic activity and inflation. As Powell stated baldly on Wednesday: "We simply don't know."

Treasury Secretary Janet Yellen did know that she had a second chance on Thursday to soothe concerns among investors and the wider public about whether authorities will move towards guaranteeing all bank deposits.

She told a House committee she is prepared to take further actions to ensure bank deposits are safe, a day after telling a Senate committee blanket insurance was not on the agenda. It might not be on a par with Powell's assurances - bank stocks still fell - but perhaps sentiment will improve on Friday.

So Asia opens on Friday to firmer world stocks, lower yields, mix U.S. yield curves, higher global rates after the UK and Swiss hikes - but a growing sense that the world policy peak is in sight - a rising dollar, and a notably stronger yen.

Japanese annual core inflation in February is expected to have fallen sharply to 3.1% from a 41-year high of 4.2% the month before, thanks to government subsidies for gas and electricity bills to cushion rising living costs.

But many economists say broader price pressures remain strong throughout the economy, which could force the Bank of Japan to phase out or scrap its yield curve control policy soon.

Here are three key developments that could provide more direction to markets on Friday:

- Japan consumer price inflation (February)

- Japan flash PMIs (March)

- Australia flash PMIs (March)

The raids began at seven o’clock on the morning of March 21st. Armed police brigades of a dozen men each descended on twelve Moscow addresses and turned them upside-down. Where they found documents, they sealed them. Where they found computers, they confiscated them. Where they found spirits, they drank them. The targets of the raids were not typical criminals, but eight soft-spoken intellectuals, several of them elderly, who work for Memorial, a human-rights group now banned in Russia.

The eight were detained for questioning on charges of supposed “rehabilitation of Nazism”, which can carry up to five years in jail. The case being cooked up against them is trivial: Memorial databases documenting victims of Soviet political terror accidentally included three actual Nazi collaborators among more than four million other names. The databases have long embarrassed Russia’s secret services, which consider themselves the heirs of the KGB. But the investigating officers were also interested in matters unrelated to history, says Alexandra Polivanova, one of the eight Memorial employees: “They asked about Alexei Navalny and Ukraine, for whatever reason.”

The case is clearly not about Nazism; even using the word in relation to Memorial, which was founded to combat totalitarianism and extremism, is ludicrous. Nor does it appear to be aimed at any particular individual. Ms Polivanova thinks it is intended to send a message to stop investigating or publicising human rights, war crimes or historical truth, since any such work undermines the basis of Vladimir Putin’s imperial war. Memorial has received many such messages over the years, but ignored all of them. In 2015 it was labelled a “foreign agent”; in December 2021 it was officially disbanded by the government. In October 2022 it was ejected from its headquarters. On the same day it was awarded a Nobel Peace Prize, sharing it with Ukrainian activists and an advocate for human rights from Belarus.

Dmitry Muratov, who received the previous year’s Nobel prize as editor of Novaya Gazeta, an independent newspaper, suggests authorities have underestimated the toughness of Memorial’s mild-mannered scholars, who are determined to stay in Russia. “They are still unable to comprehend how Memorial was forged, in the atmosphere of Soviet dissident prison camps,” he says. Mr Muratov says he has encouraged members of Memorial to leave Russia, but with little success. “They are audacious, intellectual aristocrats who demonstrate they aren’t afraid of people who, in their opinion, are plunging our country into catastrophe.”

Ms Polivanova of Memorial said the group had been expecting such raids ever since authorities leaked news of the criminal case in early March. But she and her colleagues reaffirmed their decision to stay. They need to help fix the “disaster” of Russian society, she says. “Even if the war ends, and Ukraine regains its territories, Russians won’t disappear into space.” She sees 2023 as a “low point”: life is now as difficult for people like her as it was for Soviet dissidents from the 1960s-80s.

The day after the raids, many Memorial staff members made their way to Moscow’s Gulag Museum. There they attended the launch of a new book about Andrei Sakharov, a famous dissident sent into internal exile in 1980 by Leonid Brezhnev, then the Soviet leader. The book, based on secret KGB files, documents the system’s exhaustive and futile efforts to shut him up. Just publishing it in the current political environment is an achievement. The atmosphere at the opening was forlorn, but some drew inspiration from Mr Sakharov’s eventual victory over the Soviet machine. The David-and-Goliath story “gives us hope”, said Irina Scherbakova, one of the authors.

For others that time is gone. “The market for hope is closed, we’ve simply stopped trading these shares,” says Mr Muratov, who has been navigating the treacherous waters of Russian power for three decades. At least six of his colleagues have been killed over the years. Dangerous currents are now heading Memorial’s way. “The authorities have decided to destroy Memorial, and to shut these people up,” he says. “They won’t stop.” ■

“YOUR PLATFORM should be banned.” The statement from Cathy Rodgers, a Republican congresswoman, kicked off a five-hour evisceration of TikTok’s chief executive, Shou Zi Chew, by American lawmakers. Both Democratic and Republican members of the House Committee on Energy and Commerce grilled Mr Chew about the potential threats of the hugely popular short-video app to America’s national security. It was a rare display of political unity by the committee’s members, the result of new bipartisan hawkishness towards China. TikTok, though based in Singapore and Los Angeles, is owned by ByteDance, a Chinese company with headquarters in Beijing. As young people have flocked to the app—Mr Chew has bragged that more than 150m Americans are now users—lawmakers have grown more concerned about the data that the Chinese-owned company may be collecting, and the potential for the app to be used to spread propaganda on behalf of the Chinese Communist Party (CCP).

The committee used Mr Chew as a punching bag for all manner of concerns over big tech. Lawmakers swung from the CCP to mental health, privacy, fentanyl, migration, advertising, misinformation and much else besides. Though many of these problems also apply to other social-media platforms, TikTok’s popularity among teenagers makes concerns over user safety more acute and emotional.

But national-security concerns dominated. Mr Chew’s goal in appearing on Capitol Hill was to convince the committee, the American government and, since the hearing was live-streamed, the American public that TikTok is eager to respond to these concerns. The company’s answer to American fears of Chinese meddling is Project Texas, a plan years in the making that aims to wall off American data from TikTok’s parent company in China. According to Mr Chew, all American data would by the end of this year be stored within the United States (though it is not currently) on servers operated by Oracle, an American firm. The app’s source code and algorithm would also be regularly inspected by third parties. TikTok says it is spending $1.5bn on the plan.

The committee wasn’t buying it. Several lawmakers suggested that Project Texas could not placate their worries that China would still have access to American data. Many called for the app to be banned. That is looking increasingly likely.

If Project Texas does not go far enough, America has two options. The Biden administration could attempt to follow through on its threat to force ByteDance to sell TikTok to another firm. China’s government is opposed to this. Hours before Mr Chew’s grilling in Washington, the country’s commerce ministry said that TikTok’s forced sale would require China’s approval, because it would involve the export of precious technology. That approval would almost certainly not be forthcoming. There may also be legal hurdles in America. President Donald Trump tried to force ByteDance to sell TikTok’s American business to a domestic firm in 2020, but the order was struck down by the courts and then rescinded when Mr Biden took office.

The second option is a ban on TikTok’s use in the United States. Several Democratic and Republican members of Congress support such a move. Many limited bans are already in place. Congress banned the app on government devices in December and the White House recently did the same for agencies in the executive branch. But states are leading the charge. At least 29 have banned TikTok on government devices or networks. Several public universities have barred students from accessing TikTok on campus Wi-Fi. Montana’s state legislature is considering a bill that would ban the app statewide. The Senate is mulling one that would grant the Commerce Department the power to prohibit communications or technology transactions between America and its “foreign adversaries”. The Biden administration has expressed support for the bill, which does not specifically target TikTok, but was designed with it in mind.

It is not clear how a wider TikTok ban would be enforced, should America go down that path. What does seem clear is that it would irk businesses worried about losing exposure to TikTok’s young audience—not to mention vex millions of devoted users. New polling from The Economist and YouGov shows that younger Americans are much less hostile to China than their parents are. Wonky explanations of national-security risk may not console them if their favourite app is taken away. ■

Treasury Secretary Janet Yellen said on Thursday the U.S. Federal Deposit Insurance Corporation's (FDIC) estimate of a $2.5 billion loss related to Signature Bank (SBNY.O) was not a final determination.

New York-based Signature Bank closed earlier this month, days after the failure of Silicon Valley Bank (SIVB.O), sending stock markets into turmoil and the banking system into a crisis.

On Sunday, a subsidiary of New York Community Bancorp (NYCB.N)entered into an agreement with U.S. regulators to buy deposits and loans from Signature Bank.

According to that deal, New York Community Bancorp would purchase deposits, loans and 40 branches from Signature Bank.

New York Community Bancorp will purchase $12.9 billion of loans at a discount of $2.7 billion.

The FDIC had earlier estimated the deal would cost its Deposit Insurance Fund about $2.5 billion, highlighting the government backstop that was needed to clinch the deal. The agency previously reported that the fund had held $128.2 billion at the end of 2022.

The Credit Roundtable, a lobby group of some of the biggest fixed income asset managers from the United States and Canada, has decided not to take legal action against Credit Suisse AG (CSGN.S), a person familiar with the matter told Reuters on Thursday.

Earlier this week, the Swiss regulator ordered 16 billion Swiss francs ($17.5 billion) of Additional Tier-1 (AT1) debt to be wiped out under its rescue takeover by UBS (UBSG.S).

The issue came up for discussion in a meeting earlier this week when some members wanted to sue the banks for the write-off, but the association decided not to take any action, the person added. The source was not authorized to speak about the matter publicly.

The source said it was always "black and white" that these bonds can be written down to zero in adverse events. "So if you bought it and didn't know about it, shame on you and if you bought it and knew about it, well ..., " the source added.

The Credit Roundtable was unavailable for comment. Launched in 2007 for bondholders' protection, Credit Roundtable consists of 43 members including PIMCO, Vanguard, MetLife (MET.N), Canadian pension fund Omers, and Sun Life Financial Inc (SLF.TO).

The source said individual members are free to pursue legal action independently.

The bond holders of Credit Suisse in Europe and UK have been seeking legal advice over the Swiss banking regulator's decision to write off AT1 bonds under the rescue take over by UBS. However on Thursday, the Swiss regulator reaffirmed its position on creditor hierarchy.

Few would have predicted that the demise of Silicon Valley Bank, a niche Californian lender, would be followed by the failure of Credit Suisse. But on March 19 the banking crisis reached Zurich, where regulators brokered a fire sale that saw the ailing 167-year-old bank sold to rival UBS.

On this week’s podcast, hosts Alice Fulwood, Tom Lee-Devlin and Mike Bird chart the spread of the crisis and examine its fallout. Richard Berner, a former advisor to the Treasury Secretary, explains: “Silicon Valley Bank was not systemic in life, but proved to be systemic in death.” And Huw van Steenis, who used to advise the chief executive of UBS, explains how the crisis has roiled bond markets. Runtime: 46 min

Sign up for our new weekly newsletter dissecting the big themes in markets, business and the economy at www.economist.com/moneytalks

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Hindenburg Research on Thursday disclosed short positions in Block Inc (SQ.N) and alleged that the payments firm led by Twitter co-founder Jack Dorsey overstated its user numbers and understated its customer acquisition costs.

Block vowed to fight back, saying it would explore legal action against the short seller for its "factually inaccurate and misleading report" that was "designed to deceive and confuse investors".

"Hindenburg is known for these types of attacks, which are designed solely to allow short sellers to profit from a declined stock price," the payments firm said, adding that it would work with the U.S. Securities and Exchange Commission.

Block's shares were last down 15% at $61.67, paring some losses after a 22% plunge earlier.

Hindenburg, which was behind a market rout of over $100 billion in India's Adani Group, said in its report that former Block employees estimated that 40% to 75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.

The move is seen as a challenge to Dorsey, who co-founded Block in 2009 in his San Francisco apartment with the goal to shake up the credit card industry, and is the company's largest shareholder with a stake of around 8%.

The NYU dropout was just until two years ago splitting his time between the payments firm and Twitter, his other venture that went private in 2022 in a $44 billion buyout by Elon Musk that Dorsey supported.

"Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping," Hindenburg said in a note published on its website.

The report comes at a time when the outlook for the payments industry has been clouded by worries over the strength of consumer spending in the face of elevated levels of inflation and expectations of an economic downturn.

Those concerns triggered a more than 60% slump in Block's shares last year.

Hindenburg said that Block "obfuscates" how many individuals are on the Cash App platform by reporting "misleading transacting active metrics filled with fake and duplicate accounts".

Reuters could not verify the claims raised in the report.

Cash App allows users to transfer money through a mobile application and is touted by the company as an alternative to traditional banking services.

The app had 51 million monthly transacting actives, a 16% year-over-year increase during December 2022, Block said in a fourth-quarter earnings letter.

The short seller added that co-founders Dorsey and James McKelvey collectively sold over $1 billion of stock during the pandemic as the company's share price soared.

Other executives including finance chief Amrita Ahuja and the lead manager for Cash App Brian Grassadonia also dumped millions of dollars in stock, the report added.

"What I am really concerned about is the Cash App, accusations of fraud, multiple accounts, opening accounts and fake names. And it doesn't seem like that would be something that they would allow," said Christopher Brendler, senior analyst at D.A. Davidson & Co.

"(There is) some evidence in the report that this is happening. So, you know, I think that's the most damaging part of the report," he added.

Based on the session's 20% price move, as of 9:55 a.m. ET, short sellers have made over $400 million in paper profit, according to data from financial analytics firm Ortex. Short interest was 27.96 million shares, or 5.21% of free float.

The company's ticker was the top trending on retail investor-focused forum StockTwits.

Block has also taken a hit from the upheaval in the cryptocurrency industry that forms a large chunk of its revenue base.

The company offers point-of-sales systems and an app that allows people to trade cryptocurrency.

Last month, Block said it was "meaningfully slowing" the pace of hiring this year to control costs.

Founded in 2017 by Nathan Anderson, Hindenburg is a forensic financial research firm that analyses equity, credit and derivatives.

Hindenburg invests its own capital and takes short positions against companies. After finding potential wrongdoings, the company usually publishes a report explaining the case and bets against the target company, hoping to make a profit.

Short sellers typically sell borrowed securities and aim to buy these back at a lower price.

Credit Suisse (CSGN.S) bondholders are seeking legal advice after the Swiss regulator ordered 16 billion Swiss francs ($17.5 billion) of Additional Tier-1 (AT1) debt to be wiped out under its rescue takeover by UBS (UBSG.S).

These higher-yielding junior bonds emerged from the 2008-2009 crisis as a way to boost bank capital while shifting the risk of losses to investors and away from taxpayers.

Lawyers and dealmakers said the AT1s, which have dropped in value to just a few cents in the dollar following the move, are being traded by hedge funds in a so-called litigation play.

Here's a look at the potential for litigation.

The Swiss regulator's decision inverted the long-established seniority of bondholders over shareholders over the assets of a company in distress. Not only did bondholders expect protection, but UBS is paying $3.23 billion to Credit Suisse shareholders.

This angered some investors and has prompted lawyers to start investigating potential litigation.

Other AT1 bonds fell in price on Monday on fears about the prospect of losses should other banks get into difficulty.

The bonds in the $275 billion market are designed to be shock absorbers if a bank's capital levels fall below a threshold. They are then converted into equity or written off.

Law firms including Quinn Emanuel Urquhart & Sullivan, Pallas Partners and Korein Tillery say they are speaking to prospective bondholder clients about bringing claims.

In a call on Wednesday, which drew more than 750 attendees, Quinn Emanuel raised the prospect of pursuing claims in Switzerland and elsewhere, sources with knowledge of the matter told Reuters.

One Paris-based manager of a debt fund that held Credit Suisse AT1s said he had been "spammed" with emails from lawyers.

Some distressed debt-type funds have been buying Credit Suisse's AT1s for a few cents on the dollar. The bonds were traditionally held by institutional investors.

Samuel Norris, special situations partner at law firm Ropes & Gray in London, said he had been instructed by a number of hedge funds interested in trading the debt on the back of litigation news.

But five European and UK-based asset managers, identified by fund tracker Morningstar as among the top 50 European holders of the debt, told Reuters they were reluctant to join a court case that could take years.

The owner of a Hong Kong-based distressed debt fund said he had been approached by U.S. law firms, but was not interested.

Facing any challenge could be Credit Suisse, its new owner UBS, Swiss regulator FINMA or the Swiss government.

FINMA on Thursday defended its decision, saying the move was legally watertight because of both the bond prospectuses and emergency government legislation.

FINMA said the bonds contractually allow for a total write down in a 'viability event', "in particular if extraordinary government support is granted", which occurred when Credit Suisse was given "extraordinary liquidity assistance loans secured by a federal default guarantee".

It also cited an emergency March 19 ordinance which it said authorised FINMA to instruct Credit Suisse to write off the bonds.

Hong Kong, Singapore, the European Union and Britain all said this week they would stick to the traditional hierarchy of creditors claims in the event of a bank collapse.

Yes.

A dispute over the write-off of around $1 billion AT1s issued by India's Yes Bank (YESB.NS) in March 2020 after the Reserve Bank of India initiated a restructuring of the lender is currently subject to court proceedings.

In 2017, holders of Spain's Banco Popular stocks and AT1 bonds were wiped out when the bank was taken over by Santander, although bondholders lost out alongside the shareholders.

Bondholders took legal action against the regulator but have been so far unsuccessful.

Lawyers, bondholders and banking analysts have been poring over the bond documentation to see if it allowed for the wipe-out.

The Swiss government on Sunday said that FINMA had been "provided with a clearer legal basis so that part of Credit Suisse's regulatory capital can be written off". FINMA believes both the contracts and the emergency ordinance are on its side.

But some lawyers are undaunted, although none thinks a claim would be resolved quickly.

London-based Pallas Partners said it was working on possible legal action with Swiss peers. Four other lawyers in London said they were also examining the potential for lawsuits - some on behalf of both bondholders and shareholders.

($1 = 0.9164 Swiss francs)

IN THE THREE years since the covid-19 pandemic began, one of the most persistent questions has been how the virus that caused it—SARS-CoV2—first jumped from animals to humans. SARS-CoV2 is one of a group of viruses, known as coronaviruses, commonly found in bats. But bats are rarely found in Wuhan, the Chinese city in which the virus emerged in December 2019. So how did humans come to be infected? Two theories have emerged: the “zoonotic” hypothesis, whose proponents argue that the virus jumped from animals to humans at a market in Wuhan; and the “lab leak” theory, according to which the virus escaped from a laboratory in the city. Which is right?

The initial focal point of the covid outbreak in Wuhan appears to have been the Huanan Seafood Wholesale Market. At first it seemed likely that the virus had been transmitted from bats to humans via an “intermediate” animal that was infected outside the city and then sold at the market. This was how SARS first emerged 20 years ago. In 2021 researchers confirmed that live animals, as well as fish and meat, had been sold at the market in November 2019, when the first infections may have occurred. On March 20th a new report by an international group of scientists—based on analysis of the genetic sequences of samples taken from the market in January 2020 by Chinese researchers—confirmed the presence of animals such as raccoon dogs, weasels, foxes, hedgehogs, porcupines and bamboo rats. The raccoon dog, which can carry and transmit this virus, is of particular note. But there is no way of proving from the available data that these animals transmitted SARS-CoV2 to humans.

In the months after the outbreak a second theory emerged. Scientists at the Wuhan Institute of Virology, a global centre for coronavirus research, were working on the genetic engineering of these viruses. Some observers thought that workers handling infected research animals could have provided the virus with passage to the outside world. The Chinese government has denied that the virus came from one of the country’s laboratories.

China’s reluctance to divulge information has complicated the understanding of exactly what happened in the early days of the covid outbreak. The genetic sequences used in the recent report on animals at the market were placed on a public database only temporarily. (They may be re-released when a revised version of the paper is published.) An early pre-print suggested that the virus may have already reached humans and that the market accelerated its spread, rather than being the site of the initial infection.

Despite the new data, in a briefing on March 17th the World Health Organisation (WHO) said that both the zoonosis and lab-leak theories remained on the table. Maria Van Kerkhove, a WHO epidemiologist, did say that the data was an “additional clue” in the search for an intermediate host.

Not everyone is convinced. The FBI concluded some time ago that the pandemic was probably the result of a lab leak, saying it had “moderate confidence” in that assessment. In February America’s Department of Energy—which has expertise on biological threats—came to the same conclusion with “low confidence”. Other American agencies favour the zoonosis theory, or have been unable to decide. They may have access to information that scientists have not seen, but that imbalance should soon be addressed. On March 20th President Joe Biden signed a bill to declassify information on the origins of covid-19 held by intelligence agencies.

The need to identify the origin of the virus goes beyond the imperative to understand what caused the deaths of an estimated 20m people. If covid emerged from a laboratory, that would raise questions about the safety of its research practices. But if the virus was a zoonotic spillover in a market, scientists will need a better understand where and how these viruses emerge. That is precisely the sort of research that those labs in Wuhan conduct. ■

Berkshire Hathaway's Warren Buffett has been in discussions with senior Biden administration officials about the banking crisis, leading some to speculate that Buffett would consider investing in the sector following the collapse of Silicon Valley Bank.

Buffett has been known to invest during difficult periods for the market, famously buying a stake in Goldman Sachs during the financial crisis and in Bank of America when that bank ran into trouble a few years later.

Here is history on Buffett's involvement with banks and current holdings in his investment portfolio.

Berkshire began investing in Wells Fargo & Co (WFC.N) in

1989, building an eventual $32-billion stake, but exited that stake in the first quarter of 2022 amid a series of scandals for the bank.

Berkshire injected $5 billion into Goldman Sachs Group Inc (GS.N) in September 2008 at the height of the global financial crisis in a vote of confidence for the Wall Street bank.

The investment gave Berkshire preferred stock that paid a 10% along with warrants to pay $5 billion for 43.5 million Goldman shares at $115 each.

Berkshire invested another $5 billion in Bank of America (BAC.N) in August 2011, when investors feared that the bank could run short of capital because of losses from litigation and its mortgage business following the disastrous acquisition of Countrywide Financial Corp.

That investment gave Berkshire preferred stock with a 6% dividend and warrants to pay $5 billion for 700 million Bank of America shares at $7.14 each; Berkshire later made a $11.5 billion profit on that investment in 2017, not including the dividend payouts.

The following are Berkshire's disclosed holdings in

U.S.-listed banks and financial services companies as of Dec.

31, 2022:

OTHER MATTERS

Bank of New York Mellon Corp is listed as trustee under an automatic shelf registration that allows Berkshire to periodically sell debt securities.

Berkshire owns about 20% of American Express Co(AXP.N). It has an agreement with the U.S. Federal Reserve to keep the stake passive, meaning Berkshire will not seek to influence how the company operates, an agreement dating from 1995.

Berkshire has financial services investments in other countries. They include stakes in Brazilian digital lender Nubank, whose U.S.-listed shares are known as Nu Holdings, and more than 5% stakes in five Japanese trading houses: Itochu Corp (8001.T), Marubeni Corp (8002.T), Mitsubishi Corp (8058.T), Mitsui & Co (8031.T) and Sumitomo Corp (8053.T).

Shares of Coinbase Global Inc (COIN.O) fell 15% in afternoon trading on Thursday after the U.S. Securities and Exchange Commission threatened to sue the crypto exchange over certain products.

Global regulators are keeping a close watch on the crypto world after a string of high-profile collapses wiped out more than a trillion dollars from the digital assets industry's market capitalization last year.

"This news illustrates the regulatory headwinds and uncertainty facing the crypto industry in the U.S. under the current administration," said analysts at BofA Global Research.

Brokerage KBW's analysts said in a note that the SEC serving Coinbase with a Wells notice was expected, and that the move will likely create an overhang on the crypto exchange's stock.

The company's shares were battered last year in a sector-wide rout, losing about 86% of their value.

The potential enforcement action by the SEC is likely to be tied to aspects of Coinbase's spot market as well as its staking service Earn, Prime and Wallet products, the company said.

Staking is a process in which cryptocurrency holders volunteer to take part in validating transactions on the blockchain. These products often offer customers eye-popping yields.

"We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so," Coinbase said.

Meanwhile, analysts at TD Cowen said the only way to get clarity on how the law applies to crypto solutions is through litigation.

Last month, Coinbase swung to a fourth-quarter loss as trading volumes at the crypto exchange came under pressure from an industry-wide downturn. It slashed 20% of its workforce, or about 950 jobs, as part of a restructuring plan earlier this year.

Shares of First Republic Bank (FRC.N) rose 5% on Thursday as they drew the attention of bargain-hunting retail investors, but still hovered near record-low levels on lingering fears about the future of the U.S. regional lender.

The stock was the second most traded by retail punters in Wednesday's session and the fifth most popular trade by 10:00 a.m. ET on Thursday, according to J.P.Morgan data.

San Francisco-based First Republic is in talks with its peers and investment firms about capital infusions following the shutdown of Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O) due to bank runs.

First Republic's shares have lost nearly 90% of their value this month, the worst performing stock among the members of S&P 1500 regional banks index (.SPCOMBNKS), which has fallen 30.2% during the same period.

Treasury Secretary Janet Yellen on Wednesday dashed all hopes that U.S. regulators would insure all consumer deposits through the end of the banking crisis, sending First Republic's stock down 15% on the day.

After the rapid rise in interest rates led to a crisis in the U.S. and European financial sector, the Federal Reserve on Wednesday indicated it was on the verge of pausing further increases in borrowing costs.

"While the situation remains highly uncertain, our assessment is that these stresses should subside through the spring," said Citi Research economist Nathan Sheets in a note on Wednesday.

"Over the next few months, pressures on U.S. midsize banks may occasionally flare up, and some additional institutions may require interventions from the Fed and other regulators."

The emergence of “generative” artificial intelligence (AI) means chatbots such as ChatGPT seem increasingly human, and might even become the preferred way to search the web. The Economist’s deputy editor, Tom Standage, explores recent developments in these large language-model AIs and what they mean for the future of the internet.

Canada will introduce in its budget next week a 30% investment tax credit to boost clean-tech manufacturing, especially in the electric vehicle (EV) supply chain, two government sources familiar with the document said on Thursday.

The tax credit for capital investments in manufacturing equipment will be a "significant piece" of a bundle of measures aimed at putting Canada's green-transition effort on the same level as the United States, said one source.

The credit will be available for future investments in equipment used to extract and process critical minerals used in EVs, a second source said, and to purchase equipment used in manufacturing along the entire EV supply chain, including for batteries.

In addition, the tax credit will be able to be used to buy equipment to produce nuclear energy fuels and heavy water, for making electrical energy storage, and for producing solar panels or wind turbines, the second source said.

Finance Minister Chrystia Freeland will present the 2023-2024 fiscal year budget to parliament on Tuesday. Neither source was authorized to speak on the record. A finance ministry spokesperson declined to comment.

Freeland has promised to bolster Canada's green energy stimulus after the U.S. last year passed the Inflation Reduction Act (IRA), which provides massive incentives for those who invest in clean technology there.

"In an ideal scenario, this will incentivize expanded critical minerals extraction and processing in Canada, and ideally a lot of that will then be purchased and fed into a growing net-zero manufacturing base in the U.S.," the first source said. U.S. President Joe Biden is due to arrive in Ottawa on Thursday for an official visit that officials say will include an agreement between the two countries to enhance cooperation clean energy and technologies.

Last year, Canada budgeted C$3.8 billion ($2.8 billion) to scale up exploration and infrastructure for critical minerals. Pierre Gratton, president and CEO of the Mining Association of Canada, said more investment is badly needed. Countries across the globe are scrambling to take advantage of a rapid shift to low-carbon energy. Canada has an abundance of the critical minerals used to produce EVs.

"The U.S. does need us... and right now, we're not on track to deliver," Gratton said. "So these measures, if they turn out to be in the budget, will help us make sure we can deliver." Canada sends three-quarters of its exports south of the border, and the automobile industries of the two countries are highly integrated.

Neither source put a price tag on the measure, but they did say it would not apply to projects where investments have already been agreed, such as the two Canadian battery plants planned by carmakers Volkswagen (VOWG_p.DE) and Stellantis NV (STLAM.MI).

Canada has limited financial firepower compared with what the U.S. put forward in the IRA, which many experts say will lead to more than $1 trillion in investment.

Earlier this month, a source told Reuters that green transition budget measures would focus on increasing the capacity of the electricity grid, on battery manufacturing and on mass timber construction, without providing details.

Last autumn, Canada announced investment tax credits for companies that purchase finished clean energy systems, like solar panels. Instead, the new tax credit will apply to manufacturers buying equipment to build things like solar panels.

"It's about building out the industrial base in Canada," the second source said.

($1 = 1.3659 Canadian dollars)

Argentina ordered public sector bodies on Thursday to sell or exchange their holdings of 11 sovereign dollar bonds in a bid to reorganize its debt as inflation soared above 100% and its foreign reserves dropped.

A presidential decree in Argentina's official gazette said public sector bodies would have to sell or auction five local law dollar bonds maturing between 2029 and 2041, and to swap six foreign law dollar bonds for peso debt.

The order makes official plans announced earlier in the week, which had dragged down the value of Argentina's sovereign bonds. These are already in distressed debt territory after a ninth sovereign default and a major debt restructuring in 2020.

Sovereign bond prices edged down further on Thursday, with some of the affected bonds dropping as much as 5%. Some analysts warned the measures could bring short-term gain for the government, but mean losses for state bodies longer-term.

"This swap is the same as sweeping the garbage under the rug," economist Martín Redrado, a former central bank chief, said in televised comments.

Argentina, which has long struggled with debt crises and has a $44 billion International Monetary Fund (IMF) program, is racing to shore up state coffers that have been hit by drought impacting grains sales and high global prices.

The government said its aim was to reduce exchange rate volatility, which has seen a huge gap open between the official peso-dollar exchange rate and parallel foreign exchange markets, and to absorb a surplus of pesos that worsens inflation.

"These measures will make it possible to have greater availability of instruments to stabilize the markets if necessary, absorb possible monetary surpluses and to continue fighting inflation," the government said in the decree.

The IMF said it was assessing the measures, though cautioned that while "prudent debt management" was needed, it should not be done in way that would "add to vulnerabilities down the road."

Public sector bodies will have to sell the local law dollar bonds and exchange foreign law dollar bonds maturing between 2029 and 2046 for debt payable in pesos issued by the Treasury.

The new bond would have maturity up to 13 years and be denominated in dollars but paid in pesos.

It would accrue interest on the capital adjusted for inflation at a rate of 3%, or alternatively on the capital denominated in U.S. dollars converted to pesos at the exchange rate just before the date of payment plus a 3% annual coupon.

Some analysts criticized the move, saying it would hurt the so-called Sustainability Guarantee Fund (FGS) of the pension system, though officials moved to address those fears.

An economy ministry official, declining to be named, said the FGS would get 30% of the proceeds from selling the local law bonds as well as the new bond in exchange for the foreign law debt that would be adjusted for inflation and devaluation.

"(It) gives the FGS greater stability and security, since it is not a volatile bond," the official said, adding that the planned new debt instrument was "a low-risk bond, since it has a very low probability of being defaulted."

The U.S. Securities and Exchange Commission on Thursday issued an investor alert warning that firms offering crypto asset securities may not be complying with U.S. laws.

Unregistered offerings of such securities may not provide important data, including audited financial statements, for informed decision making, the SEC said.

The securities watchdog has been cracking down on the crypto industry, which its chair has called a "Wild West" riddled with misconduct. Its efforts gathered pace after November's collapse of Sam Bankman-Fried's cryptocurrency exchange FTX.

Crypto exchange Coinbase (COIN.O) announced on Wednesday that it had received a Wells notice - a formal declaration that SEC staff intend to recommend an enforcement action.

In its investor alert, the SEC also warned investors about "proof of reserves" services offered by some crypto exchanges that are supposed to let users verify that an exchange has enough assets to back customers' holdings.

"Crypto asset entities might use these in lieu of audited financial statements in order to obscure and confuse customers about the safety of their assets," the SEC said.

Accenture Plc lowered its annual revenue and profit forecasts and decided to cut about 2.5% of its workforce, or 19,000 jobs, the latest sign that the worsening global economic outlook was sapping corporate spending on IT services.

More than half of the jobs to be cut will be in its non-billable corporate functions, Accenture said on Thursday, sending its shares up 6.4%.

Since late last year, the tech sector has laid off hundreds of thousands employees due to a demand downturn caused by high inflation and rising interest rates.

Rival Cognizant Technology Solutions (CTSH.O) last month pointed to "muted" growth in bookings, or the deals IT services firms have in the pipeline, in 2022 and forecast quarterly revenue below expectations.

IBM Corp (IBM.N) and India's top IT services firm Tata Consultancy Services (TCS.NS) have also flagged weakness in Europe, where the Ukraine war has affected client spending.

Accenture now expects annual revenue growth to be between 8% and 10%, compared with its previous projection of a 8% to 11% increase.

Earnings per share is expected in the range of $10.84 to $11.06 compared with $11.20 to $11.52 previously. The company expects to incur $1.2 billion in severance costs through fiscal 2023 and 2024.

"Companies remain focused on executing compressed transformations," Chief Executive Julie Sweet said in a post-earnings call referring to how businesses were trying to become leaner in the turbulent economy.

A survey of more than 1,000 IT decision makers by U.S.-based Enterprise Technology Research said they plan to reduce their 2023 budget growth. The growth expectations are now 3.4%, down from 5.6% increase captured in October 2022.

"In short, the data indicates a very difficult environment ahead for consulting firms," said Erik Bradley, chief engagement strategist at the technology market research firm.

JPMorgan Chase & Co analysts estimate that the "most vulnerable" U.S. banks are likely to have lost a total of about $1 trillion in deposits since last year, with half of the outflows occurring in March following the collapse of Silicon Valley Bank.

The team of JPMorgan (JPM.N) analysts led by Nikolaos Panigirtzoglou did not name any of the banks they categorized as "most vulnerable" or say how many they included in this group.

"The uncertainty generated by deposit movements could cause banks to become more cautious on lending," they wrote.

"This risk is heightened by the fact that mid- and small-size banks play a disproportionably large role in U.S. bank lending," they added in a note dated March 22.

Regulators closed SVB (SIVB.O) and Signature Bank (SBNY.O) earlier this month, marking the second and third largest failures in U.S. banking history, respectively.

The speed at which customers withdrew their money from the two banks sparked concern of bank runs spreading to other institutions, prompting U.S. authorities to backstop their deposits.

The failures amplified worries among customers who rushed to move their money to bigger banks that were perceived to be safer and hold a greater share of insured deposits.

Of the $17 trillion of total U.S. bank deposits, nearly $7 trillion are not insured by the Federal Deposit Insurance Corp (FDIC), the JPMorgan analysts wrote.

"Fed rate hikes have been inducing a deposit shift via another channel: via creating losses in banks’ bond portfolios which in turn made depositors less comfortable with keeping uninsured deposits in banks with large unrealized losses on their bond holdings," they wrote.

A government guarantee on deposits could help stem the outflows from small and regional lenders, Panigirtzoglou wrote.

But that possibility appeared less likely after U.S. Treasury Secretary Janet Yellen said on Wednesday that she was not considering such a proposal, which would require congressional approval. Bank risks were being reviewed on a case-by-case basis, she said.

Rising U.S. interest rates, and banks' sluggish moves to raise the rates they pay depositors, have also contributed to the outflows in the last year, the JPMorgan analysts said.

Out of the $1 trillion in deposits that were pulled out of the most vulnerable U.S. lenders, half went to government money market funds, while the other half landed at larger U.S. banks, the analysts wrote.

Spain: The Trials and Triumphs of a Modern European Country. By Michael Reid. Yale University Press; 320 pages; $30 and £18.99

THE PAST 15 years have been tumultuous for many European countries. In the case of Spain, the period has been marked by recessions and debt crises between 2008 and 2014, a shakedown in the party system, the tarnishing of numerous institutions (including the monarchy), the eruption of populist movements on the far left and right, the revolt of the Catalan nationalists, the global pandemic and an upsurge in the politics of intransigence and polarisation. The raison d’être of Michael Reid’s new book, “Spain: The Trials and Triumphs of a Modern European Country”, is not just to identify the problems that transfix Spain today, but also to suggest a constructive way forward.

In so doing, he tackles a host of issues, ranging from immigration, the environment and the abandonment of rural areas to women’s rights and the family, the decline of bullfighting, the crisis of Catholicism, the media and corruption. The upshot is a lively, highly informative and nuanced portrait of contemporary Spain. It fills a huge void in English-language books on the country; future writers will be much indebted to it.

The greatest political tremor to hit Spain since the global financial crisis of 2007-09 has been the bid for independence of Catalan nationalists. During the transition from dictatorship to democracy in the 1970s, and in the decades thereafter, Catalans were overwhelmingly supportive of regional devolution. All that changed with the mauling of the Catalan statute—which gave the territory greater autonomy and defined it as a “nation”—by the constitutional court in 2010. Together with the economic downturn, the court’s actions led to a vertiginous rise in support for Catalan independence.

As the author points out, foreigners have tended to romanticise the Catalan struggle, but the separatists have proved “rigid and intolerant”, even “racist”. The Catalan conundrum is inextricably linked to one of the principal unresolved issues of the transition: the regional autonomous communities. Though they have achieved a great deal—overseeing education and social services, for example—they have nonetheless promoted parochialism and division at the expense of national commonalities and unity. For Mr Reid, the panacea is federalism, but the question remains as to how political opposition to such a solution, particularly on the right, would be overcome.

His discussion of other key issues, such as the economy, “historical memory”, the judiciary, the rejuvenation of the Basque Country and education, is distinguished by the same even-handed yet empathetic approach. Mr Reid is especially good on the faults and foibles of the political system, above all the staggering lack of accountability and the notorious “closed lists”, which allow party bosses to decide on the candidates for a general election, thereby stifling internal debate and dissent.

Central to Mr Reid’s portrayal of contemporary Spain is the contrast between the “golden age” between 1975 and 2000 and the period from 2000 to 2018, by which time the “shadows had all but obscured the sun”. In your reviewer’s opinion, this is greatly overdrawn. Mr Reid tends to idealise the transition, as indicated by the claim that it was characterised by “little violence” when there were 665 politically motivated deaths between 1975 and 1982. In reality these years were marked by would-be coups, a recession, abrupt political lurches and terrorist atrocities. Similarly, the major achievements of the socialist governments of 1982-96 should not mask their endemic corruption, the “dirty war” against ETA(the armed Basque separatist group) and persistent high unemployment.

Mr Reid contends that the coup d’état perpetrated 100 years ago by Miguel Primo de Rivera, a general, “ought to serve as a warning to Spain’s political class”. This is far-fetched stuff, not just because state and society were vastly different back then, but also because the army had been usurping civilian power for years. Urged on by the authoritarian Alfonso XIII, the army influenced policy and pushed through reforms favourable to its interests. No such threat exists today.

This writer does not share Mr Reid’s gloomy prognosis that “if the country cannot find a path of political renewal, the permanence of its achievements will be in doubt”, as the constitutionalists far outweigh the anti-constitutionalists and the extreme left and right appear to be in decline. The labour law of 2022, which reduces the number of part-time jobs and provides greater security, shows that significant reform is possible after all. Still, as Mr Reid contends, such triumphs are bound to be followed by further trials.

NIGEL TOWNSON*

*Our policy is to identify the reviewer of any book by or about someone closely connected with The Economist. Nigel Townson teaches history at the Complutense University of Madrid. He is the author or editor of several books, including “The Crisis of Democracy in Spain” (2000), “Spain Transformed” (2007) and “The Penguin History of Modern Spain” (2023).

TikTok’s billion-plus users long to be famous for 15 seconds. But the social-media app’s chief executive, Shou Zi Chew, avoids the limelight. Few of TikTok’s users would recognise the 40-year-old Singaporean, whose personal TikTok account, @shou.time, shows only 13 videos posted in the past year. He seldom gives interviews and his Wikipedia entry runs to about 150 words. Yet on March 23rd Mr Chew was thrust before the world’s cameras as he gave evidence to a committee of America’s House of Representatives.

Democrats and Republicans alike fret that TikTok, which is owned by Bytedance, a Chinese company, is a tool for spying on American users and feeding them communist propaganda. TikTok has always denied this. On Thursday Mr Chew did his best to persuade his inquisitors that he was not out to brainwash Americans, but merely to entertain them and show them ads. (TikTok will book nearly $7bn in advertising in America this year, forecasts Insider Intelligence, a data company.)

Amid this fiery debate, Mr Chew is a reassuringly boring presence. He professes to enjoy golf (always plugging #golftok) and theoretical physics. A graduate of University College London and Harvard Business School, he worked for Goldman Sachs in London and interned at Facebook before returning to Asia for a stint in venture capital. He led the international business of Xiaomi, a Chinese smartphone company, before joining ByteDance in 2021 as chief financial officer. Two months later he took over at TikTok after its previous chief executive, a former Disney executive named Kevin Mayer, quit amid a failed attempt by Donald Trump’s government to force the app’s sale to an American buyer.

With President Joe Biden now reviving plans to separate TikTok from its Chinese owner—and with speculation that China might counter by withdrawing the app altogether—Mr Chew’s job is to convince congressmen that TikTok is not a threat. He is also keen to remind them of the wrath they might face if they shut down one of America’s favourite apps. In a rare video posted this week on TikTok, Mr Chew appeared in a Zuckerberg-esque jeans and hoodie to announce that the app had passed 150m users in America. The subtext to Congress: that would be a lot of angry current, and potential, voters. ■

• IMF warns Lebanon will face crisis without reforms
• Lebanon must 'accelerate' some reform measures, IMF says
• Losses from financial meltdown must be borne by all, IMF says

The International Monetary Fund warned on Thursday that Lebanon was in a very dangerous situation a year after it committed to reforms it has failed to implement and said the government must stop borrowing from the central bank.

IMF mission chief Ernesto Rigo told a news conference in Beirut that the authorities should accelerate the implementation of conditions set for a $3 billion bailout.

"One would have expected more in terms of implementation and approval of legislation" related to reforms, he said, noting "very slow" progress. "Lebanon is in a very dangerous situation," he added, in unusually frank remarks.

Lebanon signed a staff-level agreement with the IMF nearly one year ago but has not met the conditions to secure a full programme, which is seen as crucial for its recovery from one of the world's worst financial crises.

Without implementing rapid reforms, Lebanon "will be mired in a never-ending crisis," the IMF warned in a written statement after Rigo's remarks.

The economy has been crippled by the collapse of the Lebanese currency, which has lost some 98% of its value against the U.S. dollar since 2019, triggering triple-digit inflation, spreading poverty and a wave of emigration.

The crisis erupted after decades of profligate spending and corruption among the ruling elites, some of whom led banks that lent heavily to the state.

The government estimates losses in the financial system total more than $70 billion, the majority of which were accrued at the central bank.

"No more borrowing from the central bank," Rigo said.

"Over the years, the government has been borrowing from the central bank. Not just in the past (but also) the last few months, which is something we have recommended should stop."

The IMF has called for financial sector losses to be distributed in a way that preserves the rights of small depositors and limits recourse to state assets, though powerful politicians and banks have pushed back, delaying the recovery.

"Suffice it to say that the loss is so large that there will unfortunately have to be a distribution between the government, the banks and depositors," Rigo added.

Still, he said that the IMF would "never walk away" from helping a member country and there was no deadline for Lebanon to implement the reforms.

Some observers say that an IMF deal now appears further away than ever before.

"To anyone observing Lebanon over the last four years, the likelihood of an IMF program being implemented appears slim to none," Mike Azar, a financial consultant and expert on the Lebanese financial crisis, told Reuters.

"There is no urgency, no incentive and no pressure on decision-makers to implement any of the basic reforms," he said, adding that Lebanon was instead headed for disorderly dollarization, collapsing public services and the wiping out of remaining deposits.

Authorities have passed some reform measures, such as a 2022 budget, an audit of the central bank's foreign asset position and a revised banking secrecy law.

But the IMF's statement on Thursday said the revised banking secrecy law should be amended again "to address outstanding critical weaknesses".

Lebanon still has no capital control law, has not passed legislation to resolve its banking crisis and has failed to unify multiple exchange rates for the Lebanese pound - all measures the IMF has requested.

Rigo said that Lebanon should move towards a market-determined exchange rate, rather than maintaining multiple rates including the central bank's Sayrafa exchange rate, which is not set by market forces.

• Capstone copper slumps on secondary offering
• Bombardier rises to TSX top on upbeat 2025 targets
• TSX rises 0.5%

Canada's key stock index edged higher on Thursday as mining and energy stocks advanced, with gains in Bombardier after its upbeat targets for 2025 also supporting the benchmark.

At 10:31 a.m. ET (14:31 GMT), the Toronto Stock Exchange's S&P/TSX composite index (.GSPTSE) was up 105.09 points, or 0.54%, at 19,637.87.

Bombardier Inc (BBDb.TO) soared 7.9% to log its biggest gain in more than two months after it raised its 2025 revenue and free cash flow targets at its investor day, banking on strong demand for private flights.

"Bombardier as a large conglomerate has done a relatively good job of shedding it's non core assets and realigning itself as a business jet provider," said David Pepall, portfolio manager at Aventine Investment Counsel.

The energy sector (.SPTTEN) rose 0.7% while the materials sector (.GSPTTMT) advanced 1.0%, tracking upbeat commodity prices.

The financials sector (.SPTTFS) rose 0.5%, a day after the U.S. central bank chair Jerome Powell reassured investors about the soundness of the banking system.

The collapse of two mid-sized U.S. lenders in March had triggered a selloff in the financials-heavy TSX as investors lost confidence in the global banking system.

Still, on a quarterly basis, TSX is up 1.4%, clinging to early gains from January when investors returned to battered markets from 2022.

Capstone copper corp (CS.TO) was the top loser on the index after the copper miner announced a bought secondary deal offering of C$285 million.

• Weekly jobless claims unexpectedly fall
• Regional bank stocks rise
• Block slides after Hindenburg says short on shares
• U.S. SEC threatens to sue Coinbase, shares tank
• Indexes up: Dow 0.61%, S&P 0.84%, Nasdaq 1.33%

Wall Street's main indexes climbed on Thursday as major rate-sensitive technology and growth stocks advanced after the Federal Reserve hinted it was close to pausing interest rate hikes amid turbulence in the banking sector.

The U.S. central bank on Wednesday raised rates by an expected 25 basis points, but its policy statement no longer said "ongoing increases" would likely be appropriate, indicating a clear shift in its stance.

The Fed's softer tone relieved markets that have been roiled by concerns about a liquidity crisis in the banking sector since the failure of two U.S. regional lenders earlier this month.

Wall Street's main indexes had closed sharply lower on Wednesday after Fed Chair Jerome Powell said the central bank was still intent on fighting inflation even as he flagged credit issues due to banking troubles could have "significant" implications for the economy.

"Markets are hoping that you have one more interest rate hike to go, probably," said Robert Pavlik, senior portfolio manager, Dakota Wealth in Fairfield, Connecticut.

"I would imagine the hopes (of a rate cut) are smashed. You don't want things going so south that you need a rate cut."

Traders' bets are almost equally split between the Fed pausing its rate hikes in May and another 25 bps hike, according to CME Group's Fedwatch tool.

As U.S. Treasury yields slipped on growing hopes of an end to the Fed's tightening cycle, Apple Inc (AAPL.O), Microsoft (MSFT.O) and Amazon.com (AMZN.O) jumped between 0.9% and 1.6% in early trading.

Communication services (.SPLRCL) and information technology (.SPLRCT) led the gains among the S&P 500 sector indexes, all of which rose, except utilities (.SPLRCU).

Bank of America (BAC.N) and UBS (UBS.N) now see the Fed funds rate target peaking at 5-5.25% in May compared to earlier forecasts of 5.25-5.5%.

Troubled regional lender First Republic Bank (FRC.N) jumped 4.6% after slumping on Wednesday following Treasury Secretary Janet Yellen's remark that there was no discussion on insuring all bank deposits.

PacWest Bancorp (PACW.O) and Western Alliance Bancorp (WAL.N) gained 2.7% and 7.1% , respectively.

Meanwhile, data showed jobless claims falling to 191,000 last week from the week prior, against expectations that the number would rise to 197,000.

At 9:33 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 195.44 points, or 0.61%, at 32,225.55, the S&P 500 (.SPX) was up 33.23 points, or 0.84%, at 3,970.20, and the Nasdaq Composite (.IXIC) was up 155.00 points, or 1.33%, at 11,824.95.

Shares of Block Inc (SQ.N) fell 20% after Hindenburg Research said it held short positions in the Jack Dorsey-led payments firm.

Among others, Nvidia Corp (NVDA.O) rose 3.0% after Needham raised its price target on the chipmaker on likely benefit from near-term data center strength.

Coinbase Global Inc (COIN.O) slid 16% after the U.S. Securities and Exchange Commission (SEC) threatened to sue the crypto exchange over some of its products.

Accenture Plc rose 3.8% after the company said it would cut about 2.5% of its workforce.

Advancing issues outnumbered decliners by a 3.62-to-1 ratio on the NYSE and 3.27-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and five new lows, while the Nasdaq recorded 17 new highs and 27 new lows.

• Weekly jobless claims fall 1,000 to 191,000
• Continuing claims increase 14,000 to 1.694 million

The number of Americans filing new claims for unemployment benefits edged down last week, showing no signs yet that the recent financial market turbulence following the failure of two regional banks was having an impact on the economy.

The unexpected dip in claims reported by the Labor Department on Thursday suggested March could be another month of solid job growth. The weekly unemployment claims report is the most timely data on the economy's health.

"A week after the banking panic began, the labor market is steady as a rock with no new layoffs nationwide," said Christopher Rupkey, chief economist at FWDBONDS in New York. "Credit conditions may tighten as banks grow more cautious, but it could be weeks or months before that translates into a material slowdown in real economic activity."

Initial claims for state unemployment benefits fell 1,000 to a seasonally adjusted 191,000 for the week ended March 18.

Economists polled by Reuters had forecast 197,000 claims for the latest week. Claims have bounced around in a tight range this year, remaining very low by historical standards, despite a rush of layoffs by major technology companies.

Unadjusted claims dropped 4,659 to 213,425 last week. A jump in filings in Indiana and an increase in Massachusetts were offset by decreases in California, Illinois and New York.

With 1.9 job openings for every unemployed person in January, employers are generally reluctant to let go of workers.

U.S. stocks opened higher. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.

Economists expect labor market conditions to loosen, especially in the wake of the collapse of Silicon Valley Bank in California and Signature Bank in New York. Financial conditions have tightened, which could cause banks to become more strict in extending credit, potentially impacting households and small businesses, who have been the main drivers of job growth.

That was acknowledged by the Federal Reserve, which on Wednesday raised its benchmark overnight interest rate by a quarter of a percentage point, but indicated it was on the verge of pausing further increases in borrowing costs.

The U.S. central bank has raised its policy rate by 475 basis points since last March from near-zero to the current 4.75%-5.00% range.

Fed Chair Jerome Powell told reporters that "the events of the last two weeks are likely to result in some tightening of credit conditions for households and businesses, and thereby weigh on demand on the labor market and inflation."

The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls portion of March's employment report.

Claims were little changed between the February and March survey weeks. The economy created 311,000 jobs in February after adding 504,000 in January.

Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, will shed more light on the health of the labor market in March.

The so-called continuing claims increased 14,000 to 1.694 million during the week ending March 11, the claims report showed. Continuing claims remain very low, indicating some laid off workers could be readily finding new work.

• Strikes to disrupt air, railway traffic and shipping
• Unions: wage offers insufficient

Two German labour unions representing transport workers called for mass strikes next Monday that are expected to cause widespread disruption on railways and at airports, the latest travel chaos in Germany prompted by wage disputes.

The strikes, scheduled to start just after midnight and affect services throughout Monday, will be the latest in months of industrial action and protests that have hit major European economies as higher food and energy prices hit living standards.

The Verdi union is negotiating on behalf of around 2.5 million employees in the public sector, including in public transport and at airports. Railway and transport union EVG negotiates for around 230,000 employees at Deutsche Bahn (DBN.UL) and bus companies.

Verdi is demanding a 10.5% wage increase, with pay rising by at least 500 euros ($544) per month, while EVG is asking for a 12% raise or at least 650 euros more per month.

"We represent groups of workers who literally run this country and are paid far too badly to do so," Verdi Chairman Frank Werneke said.

Verdi has called on around 120,000 employees in the transport and infrastructure sectors, including ground and air traffic service providers, shipping, motorways and municipal ports, to join the strikes.

"The respective employers ... are trying to fob us off with warm words and inadequate offers. That is why we have decided to act as a united force," Werneke said.

Deutsche Bahn and other public employers are offering around a 5% wage increase on average, along with a one-off payment of up to 2,500 euros ($2,723), generally below inflation, which was 6.9% in 2022 and is expected to slightly ease to 6.6% this year.

"We don't want any further escalation. We want a negotiable offer," said Martin Burkert, the chairman of the EVG union, which represents workers at 50 transport companies, including railway operator Deutsche Bahn.

EVG said further strikes around the Easter holiday in April could not be ruled out.

Deutsche Bahn criticised the planned strikes as groundless and unnecessary, saying the management's offer was responsible.

"The EVG must face up to its responsibility and return to the negotiating table immediately," Deutsche Bahn personnel director Martin Seiler said in a statement.

The company said it expected massive disruption in railway travel across the country, adding it would soon update passengers on how travel would be affected.

German airport association ADV also condemned the strikes expected to hit around 380,000 air travellers on Monday as all airports across Germany, except Berlin, would come to a virtual standstill.

"The strikes announced for Monday go beyond any imaginable and justifiable level," ADV General Manager Ralph Beisel said, adding the strikes were an attempt to introduce French conditions in Germany.

France has been hit by a series of strikes and protests since January as anger has mounted over the government's attempt to raise the state pension age by two years to 64.

($1 = 0.9181 euros)

• Swiss National Bank raises interest rate by 50 basis points
• Does not rule out additional rate rises
• Says next two weeks vital to securing Credit Suisse takeover

The Swiss National Bank raised its benchmark interest rate by 50 basis points on Thursday and said UBS's takeover of Credit Suisse had averted a financial disaster, adding it was now critical the merger took place in a smooth and fast way.

The multi-billion Swiss francs rescue package brokered by the SNB, government and regulator on Sunday prevented a systemic crisis, SNB Chairman Thomas Jordan said.

"If this solution hadn't worked, Credit Suisse (CSGN.S) would have failed, with extreme consequences for Switzerland but also the global economy," he told a press conference.

"In the last few weeks there was a real erosion in confidence in the banking world and in order to halt it - we needed another solution besides liquidity," Jordan said.

The SNB Chairman said it was vital for UBS's takeover of the 167-year-old Credit Suisse to go through as smoothly as possible in order to maintain financial stability.

"UBS (UBSG.S) made a full commitment to the takeover of Credit Suisse... now it is extremely important that both parties do everything possible that the takeover will be successful," he said, adding the next two weeks would be crucial.

His SNB governing council colleague Martin Schlegel declined to comment on when he expected the deal to go through.

Schlegel also declined to comment on whether UBS and Credit Suisse had used any of the 200 billion Swiss francs in emergency liquidity offered by the SNB.

Jordan told Reuters in a separate interview he didn't see the banks needing more liquidity, saying the current instruments were "very big, they are bold".

Switzerland's financial market regulator FINMA on Thursday defended its decision to impose steep losses on some Credit Suisse bondholders under the deal, saying the decision was legally watertight.

The dramatic events of the last 10 days overshadowed Thursday's fourth interest rate hike in succession by the SNB as it seeks to battle stubborn Swiss inflation, which at 3.4% in February - remains outside the SNB's target band of 0%-2%.

The central bank said further rises could not be ruled out.

"If you look at our newest inflation forecast, we see there is some necessity to continue to tighten monetary policy," Jordan told Reuters. "Of course we will look in three months if this is still the case or not.

The SNB also said it was willing to be active in the foreign exchange market if necessary.

It recently switched from selling Swiss francs to buying the currency to increase its value as a way to dampen the effect of imported inflation.

Central banks around the world have been hiking rates in recent weeks to check inflation.

The Swiss move on Thursday matched the European Central Bank's (ECB) 50-basis-point increase last week, while Norway's central bank also raised its benchmark interest rate on Thursday

The U.S. Federal Reserve on Wednesday raised its main interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing further increases.

The Bank of England is expected to increase its interest rate by a quarter percentage point later on Thursday.

The Swiss hike was in line with the majority of economist forecasts according to a Reuters poll.

Economists expect further hikes as the SNB fights Swiss inflation, which last year hit its highest since 1993.

"Further moves could be in the pipeline," said Gero Jung, an economist from Mirabaud. "In sum, a hawkish hike from the SNB."

By William Schomberg and David Milliken

LONDON, March 23 (Reuters) - The Bank of England raised interest rates by a further quarter of a percentage point on Thursday and said it expects the surge in British inflation to cool faster than before, despite a surprise jump in price growth announced on Wednesday.

Sounding more upbeat about the outlook for the country's slow pace of economic growth, the BoE's nine rate-setters voted 7-2 in favour of a 25 basis-point increase in Bank Rate to 4.25%.

That was its 11th consecutive increase in borrowing costs which began in December 2021, although it was the smallest rise since June last year.

Monetary Policy Committee members Swati Dhingra and Silvana Tenreyro voted to keep rates on hold while Catherine Mann, who has been the committee's strongest advocate for raising rates in bigger steps, backed the relatively small 25 basis-point increase.

The BoE - which is trying to reconcile a weak economic outlook and anxieties about global banks with stubbornly high inflation - kept unchanged its message that its MPC saw less urgency about maintaining its fast run of rate hikes.

"The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation," the BoE said.

"If there were to be evidence of more persistent pressures, then further tightening of monetary policy would be required," it added.

BoE Governor Andrew Bailey and his colleagues last month dropped language saying that they were ready to act forcefully if the outlook suggested persistent inflationary pressures.

In Thursday's statement, the BoE said price growth remained on course to fall sharply in the April-June period of this year, despite inflation's surprise jump to 10.4% in February.

Inflation in the second quarter would be lower than the BoE forecast last month after finance minister Jeremy Hunt last week announced an extension of state subsidies to lower households' utility bills, and international energy prices fell, it said.

As recently as Tuesday - before the latest inflation data - investors were split 50-50 on whether the BoE would leave Bank Rate unchanged for the first time since November 2021 after the rescue of Credit Suisse and the collapse of Silicon Valley Bank.

The BoE on Thursday noted "large and volatile moves" in financial markets around the world caused by the banking turmoil but said its Financial Policy Committee judged that Britain's banking system remained resilient.

"The MPC will continue to monitor closely any effect on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook," it said.

The European Central Bank last week stuck to its plans and raised rates by 50 basis points despite the Credit Suisse turmoil, a move repeated by the Swiss National Bank on Thursday as it warned that more hikes could not be ruled out.

On Wednesday, the U.S. Federal Reserve raised its main interest rates by a quarter of a percentage point, and indicated it was on the verge of pausing further increases.

The BoE predicted measures included in Hunt's budget would speed up Britain's sluggish economy and increase the level of gross domestic product by about 0.3% over the coming years.

It said it expected GDP would grow slightly in the second quarter of 2023, an upgrade of its pre-budget forecasts made in February that the economy was on course to shrink by 0.4% during the April-June period.

As well as the extended energy subsidies to households - which had originally been due to expire in April - the BoE now expects employment growth to be stronger than previously forecast.

The BoE is worried about the strength of the labour market because pay growth, despite cooling a bit recently, is running far above its historical average and shortages of workers remain acute, all of which is inflationary.

However, it said it expected wages to rise slightly less than it had previously forecast, as inflation expectations fell.

The BoE was not due to hold a quarterly news conference by Bailey and other top officials on Thursday. Bailey is due to make a speech on Monday.

The BoE was the first major central bank to start raising rates in December 2021 and until this week had seemed likely to join the Bank of Canada which this month stopped raising borrowing costs.

Earlier on Thursday, before the rate decision, investors in rate futures markets were positioned for possibly two more 25-basis-point moves by the BoE by September after Thursday's expected hike.

(Reporting by William Schomberg and David Milliken)

((david.milliken@thomsonreuters.com))

Keywords: BRITAIN BOE/DECISION

Toshiba Corp's (6502.T) board on Thursday accepted a buyout offer from a group led by private equity firm Japan Industrial Partners (JIP), ending months of speculation over whether the investors would be able to take it private.

The deal would potentially draw a line under the Japanese conglomerate's recent troubled history. Here is a timeline of Toshiba' woes since 2015.

2015 - Toshiba discloses accounting malpractices across multiple divisions, which involved top management. It overstated pretax profit by 230 billion yen ($1.8 billion) over seven years.

Dec. 2016 - Toshiba says it will take a charge of several billion dollars related to a nuclear power plant construction company that U.S. unit Westinghouse Electric had bought a year earlier.

March 2017 - Westinghouse files for Chapter 11 bankruptcy. Faced with more than $6 billion in liabilities linked to Westinghouse, Toshiba decides to put prized chip unit Toshiba Memory up for sale.

Sept. 2017 - Toshiba agrees to sell the chip business to a consortium led by Bain Capital for $18 billion, while retaining a large stake.

The company is desperate to close the deal by the end of the financial year in March to help right its finances and avoid a potential delisting.

That is jeopardised by a prolonged dispute over the sale with Western Digital Corp (WDC.O), its partner in a chip joint venture. Antitrust reviews are expected to take months.

Dec. 2017 - Toshiba secures a $5.4 billion cash injection from more than 30 overseas investors, helping it avoid a delisting but bringing in prominent activist shareholders including Elliott Management, Third Point and Farallon. Dispute with Western Digital is settled.

Jan. 2020 - Toshiba finds fresh accounting irregularities at a wholly owned subsidiary.

July 2020 - Five director candidates nominated by activist shareholders get voted down at annual general meeting.

Sept. 2020 - Toshiba discloses more than 1,000 postal voting forms for its AGM went uncounted. The bank that counted the votes, Sumitomo Mitsui Trust Bank (8309.T), later reveals widespread failure to count all valid votes at AGMs of client firms over past two decades.

March 2021 - Shareholders approve an independent investigation into allegations that investors were pressured ahead of the previous year's AGM.

April 2021 - CVC Capital Partners makes an unsolicited $21 billion offer to take Toshiba private.

A week later, Toshiba's CEO resigns amid controversy over the CVC bid, perceived by some within company management as designed to shield him from activist shareholders.

Toshiba's subsequent dismissal of the CVC offer angers some activist shareholders.

June 10, 2021 - A shareholder-commissioned investigation concludes Toshiba colluded with Japan's trade ministry - which sees Toshiba as a strategic asset - to block overseas investors from gaining influence at 2020 shareholder meeting.

June 25, 2021 - Shareholders oust board chairman Osamu Nagayama after critics accuse board of failing to address allegations of pressuring investors. Toshiba pledges to undertake a full review of assets and engage with potential investors.

Nov. 2021 - Toshiba says it will split into three companies, one for energy, one for infrastructure and the third to manage its Kioxia stake.

Feb. 2022 - Toshiba announces a new plan to split into two, spinning off only its devices unit.

March 1, 2022 - CEO Satoshi Tsunakawa resigns. Taro Shimada, a former Siemens AG executive who joined in 2018, appointed as interim CEO to proceed with the spin-off plan.

March 24, 2022 - Shareholders vote against spin-off plan. A separate motion backed by activist shareholders that called for the conglomerate to solicit buyout offers also fails to pass.

April 2022 - Toshiba sets up a special committee to resume a strategic review that could see it taken private.

May 13, 2022 - Ten potential investors express their interest. Under pressure from shareholders, Toshiba announces a special dividend of some $545 million.

June 2022 - Toshiba receives eight buyout proposals. Directors publicly trade criticism over governance and the nomination of hedge fund executives to its board. Shareholders later approve two activist directors, a historic shift.

July 2022 - Toshiba selects four bidders including private equity firms Bain Capital, CVC Capital Partners and a consortium involving JIP and state-backed Japan Investment Corp (JIC) to proceed to a second bidding round. JIC and JIP disagree over the proposal and decide not to pursue a bid together.

Oct. 2022 - The JIP-led consortium, involving a number of Japanese firms such as Orix Corp (8591.T) and Chubu Electric Power Co (9502.T), is given preferred status.

Feb. 2023 - After months of speculation, Toshiba confirms that it has received a proposal from an all-Japanese group led by JIP, which sources said secured $10.6 billion in loan commitments.

March 23, 2023 - Toshiba's board accepts JIP's 2 trillion yen tender offer at 4,620 yen a share, versus its last closing price of 4,213 yen.

($1 = 130.8500 yen)

What kind of story is unfolding in the banking system? At first glance it would appear to be a tragic drama. In the past fortnight, four banks have met their end: two crypto lenders, the dominant bank in Silicon Valley and most recently a global systemically important bank. There have been 11th-hour interventions to protect customers, the creation of emergency-lending facilities and a marriage between two giant rival firms.

But look again and perhaps it is a science-fiction tale. Thomas Philippon, a professor of finance at New York University (nyu), is experiencing the vertigo of time travel. “It really feels like we are back in the 1980s,” he said at a recent talk. In that decade, high inflation prompted extreme monetary tightening, which was meted out with enthusiasm by Paul Volcker, chairman of the Federal Reserve. This undermined the health of “savings and loans” banks (s&ls), consumer-savings institutions also known as “thrifts”, which mostly lent long-term fixed-rate mortgages. They faced a cap on the rate they could pay on deposits, which led to flight. And they held fixed-rate assets. When interest rates rose, these mortgages lost a considerable amount of value—essentially wiping out the thrift industry’s net worth.

The dynamic will sound familiar to anyone who has paid attention to Silicon Valley Bank (svb), where a rate shock slashed the value of its fixed-rate assets, prompting deposit flight and the institution’s collapse. The question now is whether what happened over the past fortnight was a brutal crunch or the start of a long, drawn-out process, as in the 1980s. The answer depends on the extent to which svb’s problems are found elsewhere.

Start with the value of financial institutions’ assets. Banks regularly publish data on the losses they face on fixed-rate assets, such as bond portfolios. If these assets had to be liquidated tomorrow the industry would lose nearly a third of its capital base. Worryingly, one in ten institutions looks more poorly capitalised than svb.

However, that is a big “if”. Such paper losses remain hypothetical so long as depositors stick around. A recent paper by Itamar Drechsler of the University of Pennsylvania and co-authors points out that bank deposits, which tend to be stable and interest-rate insensitive, are a natural hedge for the sort of long-term, fixed-rate lending that banks favour. The paper argues “banks closely match the interest-rate sensitivities of their interest income and expense”, which produces remarkably stable net-interest margins. This explains why bank share prices do not collapse every time rates rise, instead falling just as much as the broader market does.

The clearest evidence of flight is from two California-based banks. First Republic has reportedly lost $70bn in deposits—around 40% of its total as of the end of 2022—since svb failed. Lots of the lender’s clients are wealthy individuals, who appear to be quickest to pull deposits. On March 17th First Republic arranged for 11 major banks to park $30bn-worth of deposits with it. It is now reported to be seeking additional support from financial institutions and possibly the government, too. On March 21st PacWest, another Californian lender, reported it had lost a fifth of its deposits since the start of 2023.

Banks suffering from deposit flight, such as First Republic and PacWest, can turn to other financial institutions for liquidity—or they can turn to the Fed’s newly expanded lending facilities. Official data indicate that American banks borrowed $300bn from various Fed programmes in the week to March 15th. There are some indications that most of the borrowing that was not done by already failed banks—namely, svb and Signature—was done by west-coast banks, including First Republic and PacWest. Indeed, some $233bn of the total was lent by the San Francisco Fed, which covers banks west of Colorado. On March 21st PacWest revealed that it had so far borrowed a total of $16bn from various Fed facilities to shore up its liquidity. There was at most around $2bn-worth of borrowing from any of the Fed banks that support other regions of the country, indicating that banks in other states have yet to face debilitating deposit flight.

Policymakers must now wait to see if more banks come forward. It will be an uncomfortable pause. Regional and community banks play an important role in the American economy, and do about half the country’s commercial lending. Smaller banks are particularly dominant in commercial property. They hold nearly 80% of commercial mortgages provided by banks. The temptation, which American officials have been vague about, is to ensure smaller banks do not lose their deposits by guaranteeing the lot of them.

Aaaaarrggggghhhhh

This could create a grim scenario: a zombie-horror flick. At least that is the argument made by Viral Acharya, also of nyu. Banks with flighty deposit bases and losses on their assets are exposed to real losses. The worst-possible outcome, reckons Mr Acharya, is that “you leave the banks undercapitalised but you say that all depositors of weak banks are safe”.

This kind of intervention, he says, is common historically and “whenever this has been done—it happened in Japan, happened in Europe, routinely happens in China and India—you get zombie banks”. These have no capital, are backstopped by governments and “tend to do a tonne of bad lending”. He points to the Bank of Cyprus, which was undercapitalised in 2012: “They bet the entire house on Greek debt even when Greece was actually blowing up. Why did they do that? Well, they had stable deposits, no one was folding them up, they had no equity left—and then soon after you had a spectacular bank failure.”

The thrift crisis in America in the 1980s was ultimately so costly because the initial response—when the thrifts faced losses of around $25bn—was one of forbearance. Many insolvent thrifts were allowed to stay open as part of an attempt to allow them to grow out of their losses. But their problems only worsened. They, too, came to be known as “zombies”. Just like the Bank of Cyprus, these zombies went for broke by investing in riskier and riskier projects, hoping that they would pay off in higher returns. By the time the returns did materialise, the zombies were insolvent. The eventual bail-out cost taxpayers $125bn, five times what it would have done if regulators had bitten the bullet earlier. Allowing that kind of zombie flick to play out again would be a real tragedy. ■

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Collateral is usually a boring affair. Valuing assets and extending credit against them is the preoccupation of the mortgage banker and the repo trader, who arranges trillions of dollars a day in repurchase agreements for very short-term government bonds. This activity is called financial plumbing for a reason: it is crucial but unsexy. And like ordinary plumbing, you hear about it only when something has gone wrong.

Now is one of those times. On March 16th the Swiss National Bank extended $54bn to Credit Suisse, backed by the bank’s collateral, in a move that turned out to be insufficient to save the 167-year-old institution. On March 19th America’s Federal Reserve announced it would reactivate daily dollar swap lines with Britain, Canada, the euro area, Japan and Switzerland. The central banks of these economies can now borrow dollars from the Fed at a fixed exchange rate for short periods, backed by their own currencies, and lend them on to local financial firms.

In normal times assets that are exposed to little risk, and thought unlikely to swing much in value, underpin lots of market activity. Government bonds and property are typical examples of collateral. Commodities, corporate credit and stocks are riskier but also sometimes employed. Both sorts of collateral are at the root of many financial crises.

The perception of safety is the reason why risks eventually emerge. The safer assets are thought to be, the more comfortable a lender is extending credit against them. Sometimes the assets are themselves safe, but the lending they enable (and the use of the money) is not.

This tension between safety and risk can prompt financial panics. At other times, the problem is simple misjudgment. The activities of Silicon Valley Bank (svb) were in essence a leveraged bet on assets its bankers believed to be solid: long-dated mortgage and Treasury bonds. The firm’s management believed it could safely borrow money—namely, that owed to depositors in the bank—against these reliable assets. The subsequent rapid drop in price of the assets was ultimately the cause of the bank’s downfall.

During the global financial crisis of 2007-09, the belief in the unimpeachable safety of the American mortgage market led to an explosion in collateralised lending. The blow-up did not even require actual defaults in mortgage-backed securities. The mere shift in the probability of default raised the value of credit-default swaps, and the liabilities of firms that sold the products, which was sufficient to sink institutions that had sold enormous volumes of the swaps. In Japan in the early 1990s a collapse in land prices, the preferred collateral of domestic banks, led to a slow-burning series of financial crises that lasted for longer than a decade.

Crises do not only reveal where collateral has been wrongly judged to be safe. They are also the source of innovations that upend how collateral works. In response to the panic of 1866, caused by the collapse of Overend, Gurney & Company, a wholesale bank in London, Walter Bagehot, a former editor of this newspaper, popularised the idea of central banks operating as lenders of last resort to private financial institutions, against sound collateral. The daily swap lines recently reactivated by the Fed were introduced in the financial crisis and reopened in the early period of covid-19.

The Fed’s “Bank Term Funding Programme”, introduced after the collapse of svb, is the first innovation in collateral policy during the present financial wobble. The programme’s generosity is both new and shocking. A 30-year Treasury bond issued in 2016 is worth around a quarter less than its face value in the market today, but is valued at face value by the Fed if an institution pledges it as collateral. In the programme’s first week, banks borrowed nearly $12bn, as well as a record $153bn from the central bank’s ordinary discount window, at which banks can now borrow without the usual haircut on their collateral.

The programme could change the understanding of collateral that has built up over the past 150 years. If investors expect the facility to become part of the regular panic-fighting toolkit, as swap lines have, then long-maturity bonds would enjoy a new and very valuable backstop. This would mean that financial institutions benefit when interest rates fall and their bonds rise in value; and when rates rise and the bonds slump in value, the Fed comes to the rescue. In an attempt to remove the risk of sudden collapses, and make the financial system safer, policymakers may in the long run have done just the opposite.

Read more from Buttonwood, our columnist on financial markets:
Why commodities shine in a time of stagflation (Mar 9th)
The anti-ESG industry is taking investors for a ride (Mar 2nd)
Despite the bullish talk, Wall Street has China reservations (Feb 23rd)

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In his first speech as a governor of the Federal Reserve, Ben Bernanke offered a simple adage to explain a complex topic. The question was if central banks should use monetary policy to tame frothy markets—for example, raising interest rates in order to deflate property bubbles. His answer was that the Fed should “use the right tool for the job”. It ought to rely, he argued, on regulatory and lending powers for financial matters, saving interest rates for economic goals such as price stability.

Two decades later, Mr Bernanke’s doctrine is facing a stiff test in the reverse direction—as a framework for dealing with frazzled, not frothy, markets. On one flank the Fed is trying to douse the red-hot embers of a crisis that began with a run on Silicon Valley Bank (svb). On the other officials face stubborn inflation, having failed to wrestle it under control in the past year. The tension between stabilising the financial system, which calls for support from the central bank, and reining in price pressures, which calls for tight policy, is extreme. But with two different sets of tools, the Fed is attempting to do both things. It is an improbable mission. And it is one that other central banks will have little choice but to emulate in forthcoming months.

On March 22nd, at the end of a two-day meeting of the central bank’s rate-setting body, Jerome Powell, the Fed’s chairman, laid out the logic of its extensive support for the financial system. “Isolated banking problems, if left unaddressed, can undermine confidence in healthy banks,” he said. Yet he also maintained that the Fed could, and would, bring down inflation. “Without price stability, the economy does not work for anyone,” he said. Putting policy where its mouth is, the Fed opted to lift rates by one-quarter of a percentage point.

Before the meeting there was debate about whether officials would follow through with their ninth straight rate rise. Continued tightening had appeared a foregone conclusion when figures for February revealed inflation was still uncomfortably high, running at 6% year-on-year, three-times as fast as the Fed’s target. But as panic spread following svb’s collapse, some prominent voices called for a pause to survey the effects on the economy. Or as Eric Rosengren, a former president of the Fed’s branch in Boston, put it: “After a significant shock from an earthquake should you immediately resume normal life?”

In the end the Fed was undeterred. Having already lifted rates by nearly five percentage points over the past year—its steepest tightening in four decades—the latest increase of a quarter-point was, in numerical terms, piddling. But as a measure of the Fed’s resolve, it was freighted with significance: it showed that Mr Powell and his colleagues believe they can use monetary-policy tools, especially interest rates, to tackle inflation, even when tightening poses risks to financial stability.

The Fed is willing to take this stance because of the range of alternative tools it can deploy in response to the mayhem in markets. Over the past couple of weeks, the Fed, acting in concert with other parts of the state, has raced to safeguard both assets and liabilities in the banking system. On the asset side, it has given troubled banks easier access to liquidity, offering to lend against the face value of government-bond holdings, even when market pricing is much lower. This has spared banks from having to realise losses that, in aggregate, ran to $620bn at the end of 2022—enough to wipe out nearly a third of equity capital in the American banking system.

As for liabilities, the Federal Deposit Insurance Corporation, a regulator, pledged to stand behind large uninsured deposits in svb and Signature, another bank that suffered a run. Janet Yellen, the treasury secretary, has hinted at similar support if depositors flee smaller banks, though on March 22nd she said the Biden administration was not considering blanket insurance (which would require approval from Congress). Still, even with deposit insurance legally capped at $250,000, the message seems to be that accounts are safe no matter their size. The combination of the Fed’s lending plus insurance has, for now, helped calm things down: after plunging by a quarter, the kbw index of American bank stocks has somewhat stabilised.

The Fed’s nightmarish balancing act between inflation and financial stability looks very different from its past two crises. During both the global financial meltdown of 2007-09 and the sudden economic stoppage in 2020 when covid-19 struck, the Fed and other central banks threw everything they had at reviving the economy and propping up the financial system. On both occasions, financial and economic risks pointed sharply downwards. That may have contributed to doubts about the Fed’s ability to walk and chew gum—to fight inflation and soothe market strains.

For Fed watchers, though, such cross-cutting actions look less surprising. In several cases—after a big bank collapse in 1984, a stockmarket crash in 1987 and a hedge-fund blow-up in 1998—the Fed briefly stopped raising rates or modestly cut them but resumed tightening policy before long. Economists at Citigroup, a bank, concluded that these experiences, not 2008 or 2020, are more pertinent today. Whereas markets are pricing in the possibility that the Fed may cut rates by half a percentage point before the end of this year, Citi’s view is that the central bank may surprise investors with its willingness to keep policy tight so long as inflation remains high. Indeed, that is exactly what it has signalled. Along with raising rates on March 22nd, the Fed published a summary of its projections. The view of the median member of the Federal Open Market Committee is that they will raise rates by another quarter-point this year and only start cutting them next year.

Nevertheless, the neat division between monetary-policy and financial-stability tools can look blurrier in practice. Take the Fed’s balance-sheet. As part of efforts to tame inflation, the central bank last year began quantitative tightening, letting a fixed number of maturing bonds roll off its balance-sheet each month, removing liquidity from the banking system. Between last May and the start of March it shrank its assets by about $600bn. Then in the course of a few days after the svb rout, its assets grew by $300bn—a by-product of the credit it had provided to banks through its discount window and other emergency operations. Monetary wonks see a clear distinction: quantitative tightening is an enduring change to the Fed’s balance-sheet, whereas the emergency credit will vanish when things normalise. But given that one of the main channels through which balance-sheet policies work is as a signal about the Fed’s intentions, the potential for confusion is evident.

Another blurred line is the feedback between financial stability and monetary policy. Most of those who argued for a Fed pause were not crudely advocating that the central bank needs to rescue beleaguered investors. Rather, the more sophisticated point was that bank chaos and market turmoil were themselves tantamount to rate increases. Financial conditions—which include bond yields, credit spreads and stock values—have tightened in the past couple of weeks. Torsten Slok of Apollo Global Management, a private-equity firm, reckoned that the shift in pricing was equivalent to an extra 1.5 percentage points of rate increases by the Fed, enough to tip the economy into a hard landing.

Not all agree the effect will be so large. Banks are responsible for about one-third of credit provision in America, with capital markets and firms such as mortgage lenders offering the rest. This could insulate firms from stricter lending standards at banks. Moreover, America’s biggest banks account for more than half the banking system by assets, and they remain in strong shape. Yet even with these caveats, the impact is still real. As banks shore up their balance-sheets, both deposit and wholesale-funding costs are rising, which transmits the tightening to the financial system. Deutsche Bank thinks the lending shock, if minor, will shave half a percentage point off annual gdp growth. The Fed will probably now have to go less far to tame inflation.

Ultimately, its ability to treat instability and inflation on separate tracks depends on the severity of the banking crisis. “If financial issues are screaming, they will always, and rightly, trump slower-moving macroeconomic questions,” says Krishna Guha of Evercore isi, an advisory firm. The fact that America’s emergency interventions in the past two weeks had gained traction, with deposit outflows slowing and markets paring their losses, is what enabled the Fed to turn its attention back to inflation. It is easy to imagine an alternative scenario in which the interventions failed, forcing it to desist from a rate rise.

This helps to explain the haste of Swiss officials to bring an end to the Credit Suisse drama. Central bankers know only too well that the uncontrolled collapse of such a big firm would send shock waves through the global financial system. In that case, they would have been under immense pressure to retreat from the fight against inflation. The right tool for the right job is an attractive way of delineating the objectives of central banking. Yet it only works so long as the job of restoring stability after a financial explosion is handled swiftly. ■

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CENTRAL BANKS face a painful tradeoff: raise rates too quickly and risk banking-sector instability. Raise them too slowly and risk continued high inflation. Our correspondent travelled to Kyiv to meet a woman who has rescued hundreds of wild animals. And reflecting on the legacy of a woman who changed British attitudes toward sex. Runtime: 25 min

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Cryptocurrency bankruptcies and worries over electric power consumption have failed to dent the industry's growth in Texas, according to a top trade group, citing the rise in the miners' power demands.

Bitcoin miners consume about 2,100 megawatts of the state's power supplies, said Lee Bratcher, president of industry group Texas Blockchain Council. That power usage rose 75% last year and was nearly triple that of the prior 12 months, Bratcher said.

Those demands amount to about 3.7% of the state's lowest forecast peak load this year, according to data from grid operator Electric Reliability Council of Texas (ERCOT).

"There's been some challenges with the Bitcoin mining industry," Bratcher said, noting his group recently saw two prominent bankruptcies and other miners scaling back expansions.

The industry also faces new federal regulations, including a proposed 30% tax on electricity usage for digital mining and calls by the U.S. Treasury secretary and commodities regulator for a regulatory framework.

New York this year imposed a ban on some cryptocurrency mining that runs on fossil fuel-generated power. Other states are expected to follow suit.

But in Texas, some counties have offered tax incentives and miners continue to be drawn to its wind and solar power, which could supply about 39% of ERCOT's energy needs in 2023.

"Bitcoin mining is a very energy intensive business, which is why we tend to find places like West Texas to be full of Bitcoin miners," said Matt Prusak, chief commercial officer at cryptocurrency miner U.S. Bitcoin Corp, which has one of its mining operations in a 280-megawatt wind farm in Texas.

Its McCamey, Texas, site last month consumed 173,000 megawatt hours of power – about 60% provided by the grid and nearly 40% from the nearby wind farm. The average American home uses about 10 MWh in a year, according to the Energy Information Administration.

In Texas, where about 250 people died during a winter storm blackout that exposed the fragility of the state's grid, the prospect of higher crypto demand has raised alarms.

"There are a lot of Bitcoin mines that are trying to connect to the system," said Joshua Rhodes, a research scientist at the University of Texas at Austin. "If all of them were to connect in the timelines that they are looking to connect, then it probably would present an issue to the grid because that load would be growing way faster than it ever has before."

Toshiba Corp's (6502.T) board on Thursday accepted a buyout offer from a group led by private equity firm Japan Industrial Partners, a source familiar with the matter said, potentially drawing a line under years of upheaval for the company.

A successful deal, which sources have previously said would be worth around 2 trillion yen ($15 billion) would see the scandal-ridden industrial conglomerate taken private and firmly in control of domestic hands after much tension with activist shareholders.

It is, however, not yet clear whether activist funds, which are estimated to own roughly a quarter of the company, will be satisfied with the terms.

Some 20 Japanese companies including financial services firm Orix Corp (8591.T), chipmaker Rohm Co (6963.T) and Chubu Electric Power (9502.T) plan to take part in the deal, sources have said. It would be the third-largest M&A transaction globally so far this year, according to Refinitiv data.

The company is due to make an announcement later on Thursday, said another source familiar with the matter. The sources declined to be identified as the deal has not yet been made public.

Toshiba, a sprawling conglomerate which also owns 40.6% of memory chip maker Kioxia Holdings, declined immediate comment.

"This ends months of uncertainty regarding whether a deal was coming and years of uncertainty regarding Board understanding of the right price," said analyst Travis Lundy of Quiddity Advisors, who publishes on Smartkarma.

"This would provide a lot of activists a way out, even if it is not what they hoped for. The question is whether 'Toshiba Fatigue' is strong enough to overcome disappointment on price."

Since 2015, Toshiba has been battered by accounting scandals, heavy losses and came close to being delisted before becoming engulfed in a series of corporate governance scandals.

At one of its lowest points, a shareholder-commissioned investigation concluded Toshiba had colluded with Japan's trade ministry - which sees the company's nuclear and defence technology as a strategic asset - to block overseas investors from gaining influence at its 2020 shareholder meeting.

The fallout from that debacle eventually led to the strategic review and the buyout proposal.

Toshiba started an auction process about a year ago, receiving eight initial buyout proposals as well as two offers for capital alliances.

Four bidders proceeded to a second round, including private equity firms Bain Capital, CVC Capital Partners and Brookfield Asset Management (BAM.TO), sources have said.

JIP initially teamed up with state-backed Japan Investment Corp (JIC) but decided to part ways due to disagreements over whether management should be retained and plans for restructuring.

The JIP consortium last month submitted a binding buyout proposal backed by $10.6 billion in loan commitments from major banks. read more

It has taken weeks for the board to proceed with a vote on JIP's proposal as some board members were dissatisfied with its offer price, sources have said.

Shares of Toshiba have fallen 12% over the last year, underperforming a 2.2% decline in the Nikkei 225 average (.N225).

($1 = 130.7500 yen)

A look at the day ahead in U.S. and global markets from Mike Dolan

Even with a nod to greater banking stress, the major central banks all seem determined to tighten the monetary screw another notch.

After the Federal Reserve settled on another quarter point rate rise late Wednesday, the Swiss National Bank - in the eye of its own domestic banking storm - followed suit on Thursday with a half-point hike to 1.5%. Norway's central bank raised rates by 25 bps.

And after a disturbing return to double digit inflation in the UK last month, the Bank of England is now almost certain to lift rates by another quarter point to 4.25% later on Thursday.

If these monetary policymakers felt higher interest rates were the main cause of this month's banking shock, or that the fallout from it was truly systemic and economically damaging, the decision to push ahead with the hikes would seem perverse.

That they have pushed ahead suggests some confidence perhaps that the financial firestorm is contained, unlike inflation. Whether that's down to over focus on the rear-view mirror remains to be seen and what may be coming down the pike best explains how markets are trying to react to the latest policy twists.

Even though the Fed indicated one more rate rise may still be in the works and no rate cuts are likely this year, markets are doubting that stance yet again.

With Treasury Secretary Janet Yellen's pushback against suggestions of a blanket insurance of all U.S. banking deposits unnerving investors again after the Fed decision, few believe the financial stress has fully dissipated. And no one is certain yet how it will hit lending and the wider economy.

So markets have read the Fed move as a "dovish hike", preferring to focus on aspects of the decision, such as the removal of wording in the statement on "ongoing" rate hikes.

"Our view is that the Fed is at or near the end of the hiking cycle," PIMCO economists Tiffany Wilding and Allison Boxer told clients on Thursday, stressing that small U.S. regional banks are key in providing credit for small businesses that account for about 50% of overall U.S. employment.

After wild swings in rate futures markets and short-term Treasury yields over the past month, the former now sees a 50% chance of another quarter point Fed hike in May - but, facing down Fed guidance, also more than half a point of cuts by year end.

Two-year Treasury yields settled just under 4% early on Thursday - almost a full point below the new Fed funds rate target - and equity (.VIX) and bond market (.MOVE) volatility gauges have ebbed somewhat.

Even though stock markets swooned after the Yellen comments on Wednesday, S&P500 futures were back up smartly ahead of Thursday's open. European bourses and banking stocks were only a touch lower in the face of the latest European rate rises.

The dollar hit its lowest since early February but regained its footing ahead of the U.S. open and BoE decision.

Key developments that may provide direction to U.S. markets later on Thursday:

* U.S. weekly jobless claims, Feb new home sales, Kansas City Fed's March business survey, Chicago Fed's Feb activity index, U.S. Q4 current account

* Bank of England policy decision

* European Central Bank chief economist Philip Lane and ECB policymakers Klaus Knot and Robert Holzman all speak;

* U.S. Treasury auctions 10-year inflation-protected securities

* U.S. corporate earnings: General Mills, Darden Restaurants, Factset Research, Accenture

* European Union summit in Brussels

A lesser man than Xi Jinping might have found it uncomfortable. Meeting Vladimir Putin in Moscow this week, China’s leader spoke of “peaceful co-existence and win-win co-operation”, while supping with somebody facing an international arrest warrant for war crimes. But Mr Xi is untroubled by trivial inconsistencies. He believes in the inexorable decline of the American-led world order, with its professed concern for rules and human rights. He aims to twist it into a more transactional system of deals between great powers. Do not underestimate the perils of this vision—or its appeal around the world.

On Ukraine China has played an awkward hand ruthlessly and well. Its goals are subtle: to ensure Russia is subordinate but not so weak that Mr Putin’s regime implodes; to burnish its own credentials as a peacemaker in the eyes of the emerging world; and, with an eye on Taiwan, to undermine the perceived legitimacy of Western sanctions and military support as a tool of foreign policy. Mr Xi has cynically proposed a “peace plan” for Ukraine that would reward Russian aggression and which he knows Ukraine will not accept. It calls for “respecting the sovereignty of all countries”, but neglects to mention that Russia occupies more than a sixth of its neighbour.

This is just one example of China’s new approach to foreign policy, as the country emerges from zero-covid isolation to face a more unified West. On March 10th China brokered a detente between two bitter rivals, Iran and Saudi Arabia—a first intervention in the Middle East, which highlighted the West’s reduced clout there 20 years after the American-led invasion of Iraq. On March 15th Mr Xi unveiled the “Global Civilisation Initiative”, which argues that countries should “refrain from imposing their own values or models on others and from stoking ideological confrontation.”

China’s approach is not improvised, but systematic and ideological. Deng Xiaoping urged China to “hide your capacities, bide your time”. But Mr Xi wants to reshape the post-1945 world order. China’s new slogans seek to borrow and subvert the normative language of the 20th century so that “multilateralism” becomes code for a world that ditches universal values and is run by balancing great-power interests. The “Global Security Initiative” is about opposing efforts to contain China’s military threat; the “Global Development Initiative” promotes China’s economic-growth model, which deals with autocratic states without imposing conditions. “Global Civilisation” argues that Western advocacy of universal human rights, in Xinjiang and elsewhere, is a new kind of colonialism.

This transactional worldview has more support outside the West than you may think. Later this month in Beijing Mr Xi will meet Brazil’s president, Luiz Inácio Lula da Silva, an advocate of a multipolar world, who wants China to help negotiate peace in Ukraine. To many, the invasion of Iraq in 2003 exposed the West’s double standards on international law and human rights, a point China’s state media are busy hammering home. After the Trump years, President Joe Biden has re-engaged with the world but the pivot to Asia involves downsizing elsewhere, including in the Middle East and Afghanistan.

The West has shown resolve over Ukraine, but many countries are ambivalent about the war and wonder how it will end. At least 100 countries, accounting for 40% of global Gdp, are not fully enforcing sanctions. American staying power is doubted. Neither Donald Trump nor Ron DeSantis, his Republican rival, sees Ukraine as a core American interest. All this creates space for new actors, from Turkey to the Uae, and above all, China. Its message—that real democracy entails economic development, but does not depend on political liberty—greatly appeals to the elites of non-democratic countries.

It is important to assess what this mercenary multipolarity can achieve. Iran and Saudi Arabia have been fierce enemies ever since the Iranian revolution in 1979. China is the biggest export market for both, so it has clout and an incentive to forestall war in the Gulf, which is also its largest source of oil. The agreement it has helped broker may de-escalate a proxy war in Yemen that has killed perhaps 300,000 people. Or take climate change. Chinese mercantilist support for its battery industry is a catalyst for a wave of cross-border investment that will help lower carbon emissions.

Yet the real point of Mr Xi’s foreign policy is to make the world safer for the Chinese Communist Party. Over time, its flaws will be hard to hide. A mesh of expedient bilateral relationships creates contradictions. China has backed Iran but chosen to ignore its ongoing nuclear escalation, which threatens China’s other clients in the region. In Ukraine any durable peace requires the consent of Ukrainians. It should also involve accountability for war crimes and guarantees against another attack. China objects to all three: it does not believe in democracy, human rights or constraining great powers—whether in Ukraine or Taiwan. Countries that face a direct security threat from China, such as India and Japan, will grow even warier (see Asia section). Indeed, wherever a country faces a powerful, aggressive neighbour, the principle that might is right means that it will have more to fear.

Because China almost always backs ruling elites, however inept or cruel, its approach may eventually outrage ordinary people around the world. Until that moment, open societies will face a struggle over competing visions. One task is to stop Ukraine being pushed into a bogus peace deal, and for Western countries to deepen their defensive alliances, including Nato. The long-run goal is to rebut the charge that global rules serve only Western interests and to expose the poverty of the worldview that China—and Russia—are promoting.

America’s great insight in 1945 was that it could make itself more secure by binding itself to lasting alliances and common rules. That idealistic vision has been tarnished by decades of contact with reality, including in Iraq. But the Moscow summit reveals a worse alternative: a superpower that seeks influence without winning affection, power without trust and a global vision without universal human rights. Those who believe this will make the world a better place should think again. ■

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China has never deliberately pursued a trade surplus with the United States, Shu Jueting, a commerce ministry spokesperson, said on Thursday, despite signs that China is continuing to reduce its reliance on American exports.

Although American export data published on Feb. 7 shows that exports to China increased by $2.4 billion on the year to hit a "record high" of $153.8 billion in 2022, that is an "empty statement", according to a new report from the Peterson Institute for International Economics (PIIE). It identifies inflation as primarily responsible for this figure.

In response to a question from Reuters on whether Chinese officials should be worried that a widening surplus with the United States could hinder China's efforts to lower U.S. tariffs on Chinese goods, Shu said the United States should "lift trade restrictions on Chinese enterprises as soon as possible".

She said this was needed to "create the conditions for enterprises from both sides to expand trade cooperation and reduce the trade deficit through dialogue".

The goods trade gap with China widened $29.4 billion to $382.9 billion in 2022.

"Based on market demand, Chinese enterprises import a large amount of agricultural products, automobiles, science and technology, energy, and petrochemical products," Shu added, asserting that "China's exports have reduced inflation in the US."

Researchers at the PIIE have cautioned that "newly released data from 2022 show that US exports are falling further and further behind their foreign peers selling into the Chinese market".

Trade tensions between the United States and China have been simmering ever since the US-China Phase One Trade Deal expired at the end of 2021.

(This story has been refiled to correct the pronoun in paragraph 4)

Those who see Iran’s clerical regime as a fount of danger and discord have had no shortage of evidence in recent months. It has supplied Russia with hundreds of kamikaze drones to bomb civilian targets in Ukraine, and is thought to be building a factory in Russia to provide yet more. In early March the International Atomic Energy Agency (IAEA) revealed that it had found traces of uranium at an Iranian facility that were too pure for any civilian use and almost refined enough to be made into a nuclear bomb. The government’s violent repression of widespread public protests is now in its sixth month. And this week it conducted naval exercises with China and Russia off its southern coast.

Yet recent weeks have also seen the biggest easing of tensions in years between Iran and its geopolitical rivals in the Middle East. On March 10th the government signed a deal, brokered by China, to restore diplomatic relations with Saudi Arabia after a seven-year lapse. The Saudi government has invited Ebrahim Raisi, Iran’s president, to visit the kingdom—something only one previous Iranian president has done. And Iran’s closest ally in the region, Syria, is also patching up relations with its neighbours. Bashar al-Assad, Syria’s president, visited the United Arab Emirates (UAE) this week.

This peculiar mix of emollience and belligerence raises several questions. Is Iran turning over a new leaf? What accounts for its apparent inconsistency? And how will Iran’s confusing conduct affect the region and the world?

Just over two years ago, when Joe Biden became America’s president, he had high hopes of easing America’s long-running feud with Iran. His predecessor, Donald Trump, had withdrawn from a deal struck in 2015 that put limits on Iran’s nuclear programme. Instead, Mr Trump reimposed sanctions. Mr Biden calculated that Iran, its economy reeling, would jump at the chance to escape some of the sanctions by restoring the nuclear pact.

Mr Biden’s hopes have come to nothing. Round upon round of painstaking talks in Vienna have yielded no breakthroughs. Ali Khamenei, Iran’s supreme leader, appears to have lost patience. The IAEA’s discovery, meanwhile, suggests that Iran is accelerating its nuclear work.

But Iran’s detente with Saudi Arabia suggests that it is open to at least some overtures from its adversaries. Its relations with the kingdom in recent years had been worse, if anything, than with the United States. Iran and Saudi Arabia took opposing sides in the long civil wars in Yemen and Syria, among other disputes. Iran inflicted a series of humiliating reversals on the Saudis via the Houthis, the faction Iran backs in the war in Yemen. Last year, for instance, the Houthis fired missiles and drones at an oil depot in Jeddah, Saudi Arabia’s second city, days before a Formula 1 race there. Saudi Arabia had been lobbying Mr Biden to make sure that any deal America struck with Iran was not too lenient.

Bridging the gulf

Now, all of a sudden, in addition to restoring diplomatic ties with Saudi Arabia, Iran has agreed to curtail shipments of arms to the Houthis, according to officials in both America and Saudi Arabia. On the Saudi side, Mohammed al-Jadaan, the finance minister, has held out the prospect of Saudi investment in Iran growing “very quickly” if the agreement holds.

That may be empty talk, but the thaw in relations does seem to have an economic logic on both sides. Saudi Arabia needs stability to attract the investment it is counting on to help diversify the economy away from oil and petrochemicals. Iran’s economy, meanwhile, is on its last legs. In February the rial dropped to an all-time low of around 580,000 to the dollar, leaving it 55% weaker than a year before and 94% down over a decade (see chart). Partly owing to the weakness of the rial, inflation has hovered at about 50% for the past year.

The miserable state of the economy, in turn, has exacerbated the protests that erupted in September after Mahsa Amini, a young Iranian woman, died in the custody of the “morality police” in Tehran, the capital. Though the crowds have ebbed, unrest still smoulders in places like the Kurdish north-west. Women across the country openly defy the legal requirement to wear a hijab, a focal point of popular anger (see Middle East & Africa section).

After the deal with Saudi Arabia was signed, the rial appreciated by about 14% against the dollar (though it later lost some of those gains). “Any kind of deal that could bring any kind of stability to their domestic politics, and therefore to their domestic economics, is welcome,” says Mahdi Ghodsi, an Iranian economist at the Vienna Institute for International Economic Studies.

But the same logic does not seem to apply to the Joint Comprehensive Plan of Action (JCPOA), the nuclear pact that America wants to revive. The jcpoa barred Iran from amassing any more than 202kg of uranium of a maximum 3.67% purity. In return, the West and the UN eased sanctions on Iran’s economy. A similar offer has been back on the table since Mr Trump left office. But whereas the detente with Saudi Arabia involves marginal concessions for marginal benefits, scrapping the nuclear programme—in a deal with the hated Americans—is apparently too abject a surrender for Iran’s leaders to accept.

Since the election of Mr Raisi in 2021 (after all moderate candidates had been barred from standing), hawks have controlled all branches of Iran’s government. Mr Khamenei, the ultimate arbiter, was always reluctant to negotiate with the West. Mr Trump’s repudiation of the jcpoa left him feeling vindicated. “He says, ‘I told you we should not trust the Americans,’” says Raz Zimmt of the Institute for National Security Studies, an Israeli think-tank. “‘We were ready to do that for the sake of sanctions relief, but at the end of the day the Americans violated the deal, so you have to convince me why I should make the same mistake again.’”

What is more, Iran’s leaders believe they have built a “resistance economy” capable of enduring prolonged sanctions. Never mind the swooning rial and sky-high inflation: the regime thinks China and Russia will keep it afloat. It signed a 25-year “strategic partnership” with China in 2021 and has boosted ties with Russia during war in Ukraine. “They want to signal to the West that ‘We have our partners, we don’t need you,’” says Mr Ghodsi.

But relations with China are lopsided: Iran sends lots of cut-price oil east, but China does not send much the other way. Giddy Iranian officials talked about how the partnership agreement might spur $400bn in Chinese investment. Last year, however, Chinese firms injected just $185m. Soon after Mr Trump renounced the jcpoa, Iran announced that China National Petroleum Corporation (CNPC) had stepped in to replace Total, a French energy giant, in a $5bn contract to develop the massive South Pars gasfield. But CNPC pulled out a year later. The project remains unfinished.

Russia has overtaken China as Iran’s largest investor. The two countries are also working together to bypass Western sanctions, using their own currencies in some bilateral trade, for example, and connecting their banking systems. Trade has grown to at least $2bn a year, up from about $1.5bn before the war in Ukraine (official statistics in both places can be unreliable).

Gulf of expectations

Still, there are limits to how much two countries hobbled by sanctions can offer one another. Talk of boosting trade to $10bn a year, as Mr Raisi promised last year, is probably fanciful given their weak economies (and the fact that both countries tend to export similar products). Investment is unlikely to surge either. And they are becoming competitors in energy markets, where they both seek to offer discounted oil to Asian buyers.

At a recent talk, a pro-regime academic gave a sense of the government’s view of its economic straits. Iran, he said, was “selling every drop of oil it produced” and earning more in oil revenue—despite the discounts it must offer because of sanctions—than it did when the JCPOA was intact.

That is all true. But it omits some important context: Iran is selling every drop because production has fallen almost by half since 2017, from 4m barrels a day to 2.5m. It is only earning more revenue because the average price of oil in 2022 was 100% higher than five years earlier. In other words, sanctions have severely reduced Iran’s output and so cost the country tens of billions of dollars a year in revenue. Worse, some of Iran’s earnings come not as cash but rather through a barter scheme with China, which means the export revenue does not help to shore up the rial.

Whatever the economic cost, however, Iran’s “breakout” time (how long it needs to make a bomb’s-worth of uranium) is growing ever shorter. It has already amassed at least 70kg enriched to 60% purity. The particles the IAEA found had been enriched to 83.7%, just a fraction below the 90% required to make a bomb. Diplomats speculate that Iran has not yet accumulated much uranium of such purity. But it is hard to know anything for sure: Iran has restricted the IAEA’s monitoring of its nuclear facilities. Colin Kahl, an American official, thinks Iran could make enough fissile material for a weapon within 12 days.

It is unlikely to do so—for the moment. Although it has mastered enrichment, it lacks the expertise to turn the enriched uranium into a warhead and mount it on a missile. It is making steady progress on those fronts, too, however. Iran has an active programme making ballistic missiles and has unveiled weapons with ever greater ranges in recent years.

That leaves the world with a series of bad options. One is continued diplomacy. But if Iran wanted to return to the JCPOA, it could have done so by now. An alternative might be a lesser agreement, sometimes dubbed a “JCPOA-minus”, in which Iran would not accept broader limits on its nuclear programme but would agree not to refine uranium to weapons-grade, and permit strict IAEA monitoring, in return for limited relief from sanctions.

This idea is attractive to some European policymakers. But it would be unpopular in Israel and Saudi Arabia, because it leaves Iran so uncomfortably close to breakout. It would cause an uproar in Washington too: instead of the “longer and stronger” agreement Mr Biden has promised to negotiate, he would be settling for a shorter and weaker one. On top of all that, it is unclear whether Iran is interested.

A second option is a military strike on Iran’s nuclear facilities. Binyamin Netanyahu, Israel’s prime minister, has threatened one for more than a decade. Mr Biden has also made clear that America could attack if it felt Iran was too close to a bomb.

This would undeniably set back Iran’s nuclear work—although how much depends on who does it. Many analysts think the damage from an Israeli strike could be repaired in a matter of months. “It’s not the case of 1981 Iraq or the reactor in Syria,” says Mr Zimmt, referring to two incipient nuclear programmes that were brought to a halt by Israeli attacks.

An American strike would do more damage, but even that could be undone—and it would reinforce the rationale for having nuclear weapons in the first place. Iran has pursued a nuclear programme at tremendous cost in order to give the regime a guarantee of security. An attack by one (or both) of its greatest foes would only further convince policymakers that they need a nuclear deterrent.

Many Iranians who oppose the regime also fear an attack would prompt the country to rally behind its rulers. No one likes seeing bombs fall on their homeland, after all. But America’s assassination in 2020 of Qassem Suleimani, a senior Iranian general, does not seem to have hugely bolstered support for the regime (although it did bring big crowds onto the street). Nor did a long campaign of suspected Israeli sabotage and assassination, from the killing of Iran’s top nuclear scientist in 2020 to a strike on a drone-production facility in January. If anything, some Iranians argue, these incidents exposed the brittleness of a regime shot through with defectors and unable to protect itself.

Then there is the question of retaliation. Iran would probably lash out at either Israel, via its proxies in Lebanon and Syria, or the Gulf states. Some Saudis think their country should just grit its teeth and suffer through such an attack. That view is not widely shared in the kingdom, however, nor in the UAE, which fears an Iranian blitz would do lasting damage to its reputation as an oasis of stability. Some regional officials have sought to dissuade the Israelis from carrying out an attack.

That leaves a third option: the status quo. For all its advances, Iran is probably still a year or two away from being able to make and deliver a nuclear weapon. Even if it quickly produced lots of weapons-grade uranium, it could only turn it into a “dirty bomb”, a crude device that would not be much of a deterrent. A functional arsenal remains some way off.

What is more, Iran’s regime is odious but not suicidal. If it used a nuclear weapon it would find itself on the receiving end of a much stronger response from America, Israel or other powers. That is little comfort, of course, to Israel or Saudi Arabia. But it suggests another way forward: if Iran’s nuclear programme cannot be stopped through diplomacy or force of arms, it must be contained through the logic of deterrence. That does not preclude further efforts to press the regime, via sanctions, and to impede its nuclear work, through acts of sabotage.

None of these is a good option. They underline Mr Trump’s recklessness in renouncing even an imperfect arms-control agreement. The stand-off is a source of growing anxiety in the Gulf, which in turn, is one reason Saudi Arabia sought Chinese help in lowering tensions with Iran.

Engulfed by fear

The Saudis have not felt secure in their relationship with America for at least a decade. They saw Barack Obama’s support for the Arab spring as misguided and opposed his efforts to negotiate with Iran. Mr Trump was much warmer, yet when Saudi oil facilities were attacked by Iranian-made drones in 2019, he did little. Then came Mr Biden, who promised on the campaign trail to make Saudi Arabia a “pariah”. Congress has sought for years to obstruct arms sales to Saudi Arabia.

If your strongest partner seems unreliable, and your greatest foe seems threatening, it is only natural to hedge. The Saudis will look for ways to placate rather than provoke Iran, not unlike a shopkeeper paying protection money to the local mob boss. They will also seek to draw China into playing a bigger diplomatic role. If Iran keeps pushing ahead with its nuclear programme, the Saudis hope that China can be persuaded to use its economic clout to help rein in the regime.

If that gambit fails, however—or if China is unwilling to try—Saudi policymakers do not think China will be a substitute for America: no one expects the People’s Liberation Army to ride to the rescue when Gulf security is threatened.

For all their frustrations, the Saudis are not eager to break up with America. An Asian diplomat likens the Gulf states to Singapore, a country that has strong economic ties with China but still looks to America for its security. On March 14th Saudi Arabia announced a $37bn deal with Boeing, an American aircraft manufacturer, to buy as many as 72 of its 787 Dreamliners for a new airline being established by the main Saudi sovereign-wealth fund. Officials say the deal is not purely commercial: by giving a boost to American industry, they hope to boost the kingdom’s standing in Washington as well.

Saudi Arabia will also leave open the door to an eventual normalisation of ties with Israel. In the short term, that is hard to imagine. Israel has been paralysed for months by massive protests against a far-right government, and the number of Palestinians killed by Israeli forces in the occupied West Bank is on the rise. Both Israeli and Saudi diplomats say the circumstances for normalisation are not right. But the deal with Iran does not mean the Saudis have abandoned their budding security relationship with Israel, any more than they have given up on America as the most influential external power in the region.

All this fits with a broader spirit of detente in a region exhausted by wars and civil unrest. Mr Assad, Syria’s bloodstained dictator, is patching up ties with his neighbours, who have largely given up hope that he might be overthrown. Turkey is trying to repair its relationships with Egypt and the Gulf states, which had been frosty for years because of their differing views on political Islam. Qatar, too, is fixing festering disputes with Egypt and Saudi Arabia.

The new mood suits America just fine. Mr Biden has been preoccupied with war in Europe and competition with China. “His advisers just want to keep the Middle East off the president’s desk,” says a congressional staffer. Any reduction in tensions is therefore a good thing.

Even China’s usurpation of America’s role as regional broker is not as alarming as it may at first seem. As an American official points out, “We couldn’t have negotiated this deal, because we don’t have diplomatic relations with the Iranians.”

What is more, as Prince Faisal bin Farhan, Saudi Arabia’s foreign minister, put it, the Saudi-Iranian agreement is not a “solution to all outstanding differences”. The Iranian nuclear programme still looms large. If Iran is to remain a nuclear-threshold state, countries like Saudi Arabia will continue to feel insecure. America may not have a ready solution, but China is not even looking for one. ■

China would like to enhance communications with Ghana to seek proper resolution of Ghana's debt issue, its foreign ministry said on Thursday,

Spokesperson Wang Wenbin made the remark in response to a question on Ghana's finance minister visiting Beijing for a proposed restructuring of Ghana's debt. read more

India has asked state-owned lenders to submit details of their bond portfolios ahead of a quarterly meeting between the government and banks this Saturday, amid the turmoil in global banks, seven bankers with direct knowledge of the matters told Reuters on Thursday.

"The finance ministry has asked banks to submit data about their held-to-maturity (HTM) portfolios and mark-to-market (MTM) losses in trading books to identify any potential stress," one senior banker said on condition of anonymity.

The data collection process has been going on for the last few days and is more of a precautionary exercise because the government "does not want to be caught off-guard" if the crisis spirals further, the banker added.

It was not immediately clear when the last check was done. However, the government or the Reserve Bank of India typically asks for such data during bouts of volatility.

The bankers did not want to be named as they are not authorised to speak to the media. The Ministry of Finance did not respond to a Reuters email seeking comment.

HTM investments are securities that banks purchase and intend to hold until they mature. Typically, government bonds are the most common form of such investments.

These HTM investments account for 60% of banks' investment books, of which government securities form around 95%, according to a Macquarie report.

Following the collapse of some U.S. regional banks, there have been concerns about lenders globally having to field possible losses in their HTM portfolio.

Indian bankers said they currently do not foresee any large MTM losses because they have strong capital levels and the rise in government bond yields has been gradual.

India's 10-year benchmark bond yield has risen 50 basis points (bps) so far this financial year, during which the Reserve Bank of India has raised the policy repo rate by 250 bps. Most market participants expect the RBI to raise rates by 25 bps, to 6.75%, at its next policy meeting in April.

"Though there is nothing to worry about banks' bond holdings, the government is likely to discuss the same after asking for data from banks," said another senior treasury official at a state-run bank.

"It is just to check the stability of state-run banks."

Most analysts believe that Indian banks are not facing the same level of pressure on their bond portfolios as U.S. banks.

"Unless there is a run on banks and they face enormous liquidity issues, the need to sell HTM book is low," Suresh Ganapathy, head of Macquarie Capital's financial research, said in a note.

And since Indian banks' HTM book comprises high-quality government securities, the MTM losses are unlikely to be to the same extent as for global banks, Ganapathy added.

While Indian banks have cleaned up their balance sheets in the past few years, Capital Economics said some vulnerabilities lurk.

A high ratio of non-performing loans and low regulatory capital are causes for concern, Shilan Shah, deputy chief emerging markets economist at Capital Economics, wrote in a note this week.

"The loss absorption capacity – the loan loss rate needed to reduce the tier 1 capital ratio below the regulatory minimum of 4.5% – is lower in India than in other EMs."

Investors hoping to cash in on a boom in Chinese travel after nearly three years of pandemic lockdowns are shifting into airports, hotels and duty-free operators and away from airlines subject to fluctuating fuel prices and more intense competition.

The first wave of bullishness as China began abandoning its zero-COVID policy in December lifted airline stocks and online travel agencies like Trip.com Group Ltd (9961.HK).

But with global airlines being slow to add capacity to connect China with the U.S. and Europe and Chinese travellers preferring trips closer to home, a new set of stocks is benefiting.

Thailand has re-emerged as a favourite destination for Chinese travellers, and also for investors.

"We were active earlier in terms of domestic travel, lodging space and airports, where we've done quite well," said Elaine Tse, portfolio manager at Allspring Global Investments. Tse said the firm has locked in some profits from those bets.

"We are optimistic on a rebound in regional and international travel and continue to get exposure through airports and airplane leasing."

Shares of airports, such as Airport of Bangkok (AOT.BK) and Shanghai International Airport (600009.SS) have underperformed the big three Chinese airlines Air China (601111.SS), China Eastern (600115.SS) and China Southern (600029.SS) since the start of November, leaving room for further gains in the former.

Investors say airline stocks are not only expensive, but their earnings tend to be volatile and susceptible to swings in oil prices.

Shares of Air China, China Eastern and China Southern have gained between 7% to 17% in the past four months, with Air China and China Southern trading above their 5-year average forward earnings, according to Refinitiv data.

In contrast, China Tourism Group Duty Free Corp (601888.SS) trades at 28 times its forward earnings, well below a 5-year average.

In the battle for Chinese travelers, local airlines are expected to fare better than regional airlines such as Qantas (QAN.AX), Singapore Airlines (SIAL.SI) and Cathay Pacific (0293.HK), mainly because Chinese airlines kept more widebody planes and staff ready.

China expects inbound and outbound tourist numbers in 2023 to reach more than 90 million, recovering to 31.5% of pre-pandemic levels. All three Chinese airlines are expected to swing to profit in 2023 after reporting big losses last year, according to Refinitiv data.

Analysts expect Chinese airlines will see profits peak next year as international traffic makes a fuller rebound.

"I think we need to be patient and wait for the earnings to kick in to drive the valuations down," said Vey-Sern Ling, senior equity advisor at Union Bancaire Privee.

Hilde Jenssen, head of fundamental equities at Nordea Asset Management, has bought some consumer discretionary companies exposed to tourism such as duty-free operators in hopes of capturing secondary effects of the reopening.

While investors were betting at the start of the year that sky-high Chinese household savings, which jumped to 17.8 trillion yuan ($2.61 trillion) last year, will lead to a post-pandemic splurge, Chinese consumers have so far been cautious.

Jenssen said earnings from some consumer discretionary companies showed they were restocking inventories in anticipation of strong demand.

"It might not be sort of the big bang that everybody was hoping for at the beginning of the year ... (but) there is definitely some pent up demand."

($1 = 6.8222 Chinese yuan renminbi)

A look at the day ahead in European and global markets from Tom Westbrook

Markets reckon the Fed is pretty much done now with rate hikes, but see a different story in Europe.

The European Central Bank set the tone last week by sticking with a 50 basis point hike. Today, it's over to Norges Bank, the Bank of England and the Swiss National Bank to see whether the gap that traders have priced with the Fed is warranted.

Norges Bank has been steadily hiking since September 2021 and economists reckon it has at least two more 25 bp hikes to go.

Markets expect another 50 bps each for the ECB and BoE , and see the SNB raising rates 50 bps to 1.5% at 0830 GMT this morning.

Surprisingly hot British inflation seems to have washed out any doubt that the BoE will be in serious hiking mode today, too, with a 25 bp hike expected at 1200 GMT, its 11th consecutive rate rise.

The idea that central bankers in Britain and on the continent still have work to do - despite the effect of bank stresses on financial conditions - stands in contrast to the watchful tone at the Fed.

The result so far has been to send U.S. and European yields in opposite directions and to sell the dollar.

Janet Yellen gave things a wobble overnight by telling Congress that she hasn't considered or discussed blanket insurance on bank deposits.

But her remark that deposits at smaller banks might get a backstop if there were contagion risks went down well with community bank managers, even if it didn't with shareholders.

And Asia seems to have focused on the Fed's shift - driving Treasury yields lower, the euro back to seven-week highs above $1.09 and the yen to a six-week peak, while bank shares held steady.

Rhetoric from Threadneedle Street and Europe's central bankers today can test those shifts.

Key developments that could influence markets on Thursday:

Policy meetings in Norway, Switzerland and Britain

Eurozone consumer confidence, U.S. jobless claims

• Well-regarded former economy official will not return
• Some in Erdogan's AKP hoped for pivot to orthodoxy
• Polls show opposition leading ahead of May 14 vote

Former Turkish economy tsar Mehmet Simsek's refusal to return to politics has left President Tayyip Erdogan's ruling party scrambling to rebuild its economic credibility less than two months before landmark elections, insiders and analysts say.

Erdogan, who has led Turkey for two decades but is trailing in opinion polls ahead of the May 14 vote, had personally appealed to Simsek to return to the government and take up a top role, several people familiar with the matter said.

Some AK Party (AKP) members had wanted Simsek to champion the party's latest rhetorical pivot to more free-market policies, after years of unorthodoxy under Erdogan that had hammered the lira currency and sent inflation soaring.

But after a Monday meeting at AKP headquarters, Simsek, well-respected by international investors, said on Twitter he was not interested in "active politics" after having stepped down as deputy prime minister in 2018.

Yet he is ready to provide any type of support in his area, he added.

Separately, in a televised interview on Wednesday, Erdogan downplayed the significance of the meeting with Simsek, saying such meetings were ordinary. He added that Simsek said he would gladly help ahead of the elections.

The episode shows the difficulty of rebranding a government whose policies have set off a cost-of-living crisis and left the economy and financial markets heavily state-managed, analysts and investors say.

"Simsek's refusal to join the ranks is neither the first nor the final indicator of dwindling support for the government," said Ertan Aksoy, of Aksoy Research polling company.

AKP spokesperson Omer Celik said after the meeting that Erdogan did not offer Simsek a formal posting but that "all the mechanisms and duties of the party" were open to him.

A senior government official told Reuters the AKP was somewhat divided with some members opposed to Simsek's return, and described the outcome of the Erdogan meeting as "undesirable". The party may now need to revise its economic platform ahead of the election campaign, he added.

An AKP official who was not also authorised to speak publicly said Simsek's return would have boosted the party's polls. "We are having trouble regarding the economic picture right now. There is no arguing about that," the person said, adding new steps are needed.

Another party official said its revised election manifesto could include more "balanced" or "mixed" policies, rather than the free-market orthodox approach that some had sought.

The AKP declined to comment on whether it was revising its economic strategy ahead of the vote. Simsek declined to comment on his meeting with Erdogan.

Erdogan's determination to slash interest rates to stoke economic growth sent inflation above 85% last year. The lira has shed 80% of its value versus the dollar in five years, a period in which foreign investors largely fled the big emerging market.

The economic cost of the devastating earthquakes that struck Turkey’s south on Feb. 6 is estimated to be around $104 billion, adding to pressures on the economy.

The opposition bloc - which pledges to roll back Erdogan's economic policies - received a boost on Wednesday when a big pro-Kurdish party said it would not run its own presidential candidate, raising prospects it could unite.

Two recent polls by MAK and Turkiye Raporu show the opposition presidential challenger Kemal Kilicdaroglu between 4 and 9 percentage points ahead of Erdogan.

"The AKP ... is surprised and in a state of heavy panic. It is pressing all the buttons at the same time," Turhan Comez, chief adviser to opposition IYI Party leader Meral Aksener, said on Halk TV on Tuesday.

Though a self-described "enemy" of interest rates, Erdogan has occasionally endorsed free-market policies in recent years. But he then shifted tone again and has adopted a model prioritising production, exports and targeted cheap credit.

Such pivots - including firing market-friendly central bank governor Naci Agbal after only four months in 2021 - have left investors deeply sceptical.

Investors are "extremely cautious" about any pivot by Erdogan's government given "multiple past head-fakes", said Blaise Antin, head of EM sovereign research at asset manager TCW in Los Angeles.

Polina Kurdyavko, head of emerging markets and senior portfolio manager at BlueBay Asset Management, said the economic challenge was "not easily solvable regardless of who comes to power and regardless of what policies you implement".

Oil prices fell on Thursday following three sessions of gains, after Federal Reserve Chair Jerome Powell highlighted banking sector credit risks for the world's largest economy, while U.S. crude stocks rose more than expected.

Brent crude futures fell 66 cents, or 0.9%, to $76.03 a barrel by 0420 GMT, while U.S. West Texas Intermediate crude (WTI) dropped 74 cents, or 1.0%, to $70.16.

Both crude benchmarks settled on Wednesday at their highest close since March 14 after the dollar slid to a six-week low.

"Economic risks were being flagged out in the Fed meeting, while higher-than-expected U.S. crude oil stockpiles also dampened some optimism around demand outlook," said Yeap Jun Rong, market strategist at IG.

However, the weakness in the dollar has been a bright spot in aiding to drive some resilience in oil prices, with some room left for upside in oil prices amid dip-buying seen at the start of this week, Yeap added.

The Fed raised interest rates by a quarter of a percentage point, while indicating that it was on the verge of pausing further increases in borrowing costs, amid recent turmoil in financial markets spurred by the collapse of two U.S. banks.

Powell said on Wednesday that banking industry stress could trigger a credit crunch, with "significant" implications for an economy that U.S. central bank officials projected would slow even more this year than previously thought.

Meanwhile, U.S. crude oil stockpiles rose unexpectedly last week to their highest in nearly two years, latest data from the Energy Information Administration (EIA) showed.

Crude inventories (USOILC=ECI) rose by 1.1 million barrels in the week to March 17 to 481.2 million barrels, the highest since May 2021. Analysts in a Reuters poll had expected a 1.6 million-barrel drop.

"Despite all the bearish chatter over the U.S. oil production growth outlook for 2023, overstating cost inflation and lower capex (capital expenditure), the latest EIA weekly report confirms the pivotal role of U.S. oil for global oil markets," Citi analysts said in a note on Thursday.

Gross exports of crude oil and oil products hit a new high just shy of 12 million barrels per day, way above any other country's supply levels, the analysts added, citing EIA data.

The feeling of driving a new car off the lot is hard to beat. What comes next is not so nice: the first monthly payment.

That bill packs an extra punch these days. New car buyers with a monthly payment over $1,000 rose to an all-time high of 16.8% in February, auto information site Edmunds' data showed. That is up from 15.7% in last year's fourth quarter.

Rates are expected to head higher after the U.S. Federal Reserve lifted rates a quarter of a percentage point on Wednesday.

"It's unprecedented," said Ivan Drury, Edmunds' director of insights. "It's the acceleration that surprises the most: The combination of average transaction prices increasing greatly the last two years, and interest rate hikes. It's definitely hitting people hard."

While car prices have been leveling off as the supply chain normalizes, interest rates are squeezing buyers' wallets. Average interest rates on new-car financing rose to 7% in February, and an "ugly" 11.3% on used cars, Drury said.

A monthly car payment of more than $1,000 is starting to show its painful effects. The percentage of auto loans transitioning into delinquency (more than 30 days late) have been ticking up for the last three quarters, according to the Household Debt and Credit Report from the New York Fed.

Punishing interest rates are forcing car buyers to make tough decisions. Here are four survival tips.

One obvious way to avoid high-interest-rate hell, if you have the means, is to put down more cash. That is exactly what buyers have been doing. The average down payment in last year's fourth quarter was the highest ever, at $6,780 for new cars and $3,921 for used, Edmunds data showed.

Without extra cash on hand, the temptation is to stretch financing out further and further to minimize the monthly hit.

"I recommend paying cash for a car, or being able to pay off the car in less than three years," advised Kassi Fetters, a financial planner in Anchorage, Alaska. "If you can't do this, then you're reaching for a car outside of what you can afford."

When the supply chain was clogged up and new cars were scarce during the pandemic, buyers put down deposits with a delivery timeline of many months. Since then interest rates have spiked, and used cars have become cheaper, so what made sense then may no longer apply.

"For them it can be a dangerous situation, because they are not in control anymore," Drury said.

If you can get out of such a pre-order without too much damage – or transfer that deposit over to a more modest purchase, as dealers may allow – it may be worth considering.

It could be time to admit that your eyes were bigger than your wallet.

"If you're already tied up with a large car payment, then I suggest you sell it and get a car you can actually afford," Fetters said.

If you are swapping out for a more humble ride, look to basic offerings instead of splurging on fully loaded versions with high-end trim. Deals may be found in models that have not been fully redesigned for a few years, or certified pre-owned vehicles which sometimes come with subsidized interest rate offers.

A major roadblock is "negative equity," meaning you owe more on the car than you can sell it for. Since a car is a depreciating asset, and used-car prices have come off their highs, your trade-in may not help as much as you expected.

When interest rates are near rock-bottom, special offers like 1.9% or 2.9% financing may seem unexciting. Now, that can mean the difference between a comfortable or stressful monthly payment.

Such offers are unlikely on the newest cars, so you may have to refocus on last year's model.

"Find something where the interest rate is more manageable and subsidized," Drury suggested. "We are finally starting to see incentives rise a little more and be more widespread."

• Fed drops some hawkish rhetoric
• Dollar down broadly, euro leads gains

The dollar was under pressure near seven-week lows on Thursday after the U.S. Federal Reserve sounded close to calling time on interest rate hikes, which markets think are more or less over.

The Fed raised its benchmark funds rate by 25 basis points, as expected, but dropped language about "ongoing increases" being needed in favour of "some additional" rises, as it watches how wobbling confidence in banks affects the economy.

Futures imply only an even chance of one more hike, in contrast to Europe where markets see another 50 bps or so to go. The gap has sent the euro surging, with it touching a seven-week high of $1.0912 on Wednesday and coming close to testing it again at $1.0898 in the Asia session.

Sterling also hovered near a seven-week high as British inflation unexpectedly rose, leaving it at an eye-watering 10.4% and heaping pressure on the Bank of England to raise rates and sound hawkish at its meeting later in the day.

Markets have priced a 25-bp hike from the BoE.

Traders also expect a 50 bp hike at the Swiss National Bank, which has the franc recovering from a slide it suffered at troubles at Credit Suisse had traders nervous.

The shift in tone from the Fed makes it less likely that markets go back to worrying that strong economic data drives rates higher, said NatWest Markets head of G10 FX strategy Brian Daingerfield.

"From the foreign exchange perspective, we think that argues for further dollar weakness as the ceiling for the Fed cycle has clearly come down."

The dollar had earlier found a footing when U.S. Treasury Secretary Janet Yellen spooked markets by telling Congress she has not considered or discussed blanket bank deposit insurance.

But that mostly reversed in Asia.

The Australian and New Zealand dollars rose 0.7% and 0.8% respectively to track back toward Wednesday's peaks. Dollar/yen, which closely follows U.S. yields, fell 0.7% to a six-week low of 130.50. Two-year U.S. Treasury yields fell 11 bps, extending a drop of about 20 bps on Wednesday.

Financial markets have been roiled by wavering confidence in banks globally following a run on Silicon Valley Bank two weeks ago and the sudden demise of Credit Suisse.

The focus on the banking front is now primarily on U.S. regional lenders where worry of a contagious run on deposits remains elevated.

Fed Chair Jerome Powell said deposit flows have stabilised in the last week, and smaller lenders said they took some comfort from Yellen's remarks that deposit insurance would be considered were there to be a contagion risk.

That "took the anxiety out of the room," according to Daniel Kimbell, an executive at the local Passumpsic Bank in St Johnsbury, Vermont. Regional lenders shares, however, fell.

Bitcoin fell 3% to $27,360 on Wednesday and was held near level on Thursday after a series of U.S. Securities and Exchange Commission lawsuits over crypto promotion put a dampener on digital assets.

Currency bid prices at 0335 GMT

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

China Evergrande Group's (3333.HK) long-awaited offshore debt restructuring proposals failed to address investor concerns about the property sector's prospects, sending shares of rival developers lower on Thursday.

Evergrande, which has been at the centre of China's property sector crisis, on Wednesday announced restructuring proposals for its $22.7 billion worth of offshore debt, seen as a test of investor sentiment toward the embattled sector.

An index tracking mainland-based property developers (.HSMPI) slipped 1.1% by early morning Hong Kong time, while the broader stock benchmark (.HIS) was flat.

While trading in Hong Kong-listed shares of Evergrande remained suspended pending release of financial reports, peer Country Garden Holdings (2007.HK) slipped 0.9% and Sino Ocean Group (3377.HK) lost 5.9% in the early trade.

Under the debt restructuring plan, Evergrande bondholders were given two main options. Creditors can either swap all of their holdings into new notes with maturities of 10 to 12 years, or convert them into different combinations of new notes with tenors of five to nine years and equity-linked instruments.

"For creditors, what is the alternative or right of recourse? Sounds blunt, but it is what it is," said David Blennerhassett, Quiddity Advisors analyst who publishes on Smartkarma told Reuters.

"I think its too early to speculate that this could show that the worst is over for Evergrande," he added.

Evergrande said on Wednesday that additional financing of 250 billion yuan ($36.55 billion) to 300 billion yuan would be required for its business as it resumes operations over the next three years.

($1 = 6.8407 Chinese yuan renminbi)

Asian shares inched higher on Thursday after the Federal Reserve hinted it could pause interest rate hikes following turmoil in the banking sector, though it also reiterated its commitment to fighting sticky inflation.

In a widely expected move, the Fed raised interest rates by 25 basis points but recast its outlook to a more cautious stance as a result of the banking stress.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.27%, while Japan's Nikkei (.N225) fell 0.50%. Australia's S&P/ASX 200 index (.AXJO) lost 0.67%.

Wall Street ended sharply lower as investors digested the Fed's policy statement and comments from Fed Chair Jerome Powell's press conference.

China's blue-chip CSI 300 Index (.CSI300) and the Shanghai Composite Index (.SSEC) both fell 0.3%, while Hong Kong's Hang Seng Index (.HSI) was up 0.22%.

The Fed's statement suggested it was on the verge of pausing interest rate rises, but Powell in his press conference said the central bank would do "enough" to tame inflation and raised the prospect of further increasing rates if it needed to.

Sentiment was also damaged by a comment from U.S. Treasury Secretary Janet Yellen, who told lawmakers that she had not considered or discussed "blanket insurance" for U.S. banking deposits without approval by Congress.

"Despite seeming to rule out rate cuts this year ... much of the damage seems to have come from Yellen's parallel remarks to Congress right when Jerome Powell was insisting that the banking sector was sound," ING economist Rob Carnell wrote in a note to clients.

"This won't be the final word on either rates or deposit insurance in all likelihood, and a little further homework and collaboration between Fed and Treasury Dept seems probable."

Fed funds futures are now priced for a roughly equal chance that the Fed will lift rates by an additional 25 basis points in May or leave them unchanged, according to CME FedWatch tool.

Global markets have been volatile, with bank shares battered in the past two weeks following the sudden failures of two U.S. lenders an emergency sale of embattled Swiss banking behemoth Credit Suisse (CSGN.S).

Regulators and policymakers have scrambled globally to quell contagion risks and ease worries of a banking crisis, but investors remain wary that other small lenders may be vulnerable as credit markets tighten.

In the currency market, the dollar index fell 0.137%, with the euro up 0.25% at $1.0882.

The yen strengthened 0.43% to 130.87 per dollar, while sterling was last at $1.2286, up 0.18%.

The yield on 10-year Treasury notes was down 3.2 basis points at 3.468%, while the 30-year Treasury bond was down 1.5 basis points to 3.682%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 1.1 basis points at 3.970%.

U.S. crude fell 1.11% to $70.11 per barrel and Brent was at $75.94, down 0.98% on the day.

Brazil's central bank cited rising inflation expectations as it kept interest rates unchanged for the fifth consecutive policy meeting on Wednesday, drawing concern from the government and weakening bets of imminent monetary easing.

The bank's rate-setting committee, known as Copom, maintained its Selic benchmark interest rate at 13.75%.

The decision, which defied intense pressure from the new government of President Luiz Inacio Lula da Silva to reduce borrowing costs, matched the expectations of all 30 respondents in a Reuters poll.

"Taking into account the uncertainty of the scenarios, the committee remains vigilant, assessing if the strategy of maintaining the Selic rate for a long period will be enough to ensure the convergence of inflation," policymakers wrote in their policy statement.

"The Committee emphasizes that it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets, which have shown additional deterioration, especially at longer horizons," they added.

Finance Minister Fernando Haddad criticized the statement, saying it was "very concerning," and the central bank's next decision could put the country's fiscal position "at risk."

"Copom even signals the possibility of an increase in the interest rate, which is already the highest in the world today," he told reporters, in reference to policymakers' insistence that they would not hesitate to resume hikes if disinflation did not happen as expected.

Haddad also said Brazil's inflation is more controlled than that of other developing countries, and that inflation expectations could rapidly be reduced in light of new events.

David Beker, head of Strategy for Latin America at Bank of America, said in a note to clients he still sees the easing cycle beginning in May, but with "higher risks of a delay, given the tone of the statement."

Several economists expected the central bank to mention challenges to the global economy, which could potentially create space for rate cuts to begin earlier than previously anticipated, after high-profile U.S. bank closures and the Credit Suisse rescue.

The central bank acknowledged the worsening global environment amid banking turmoil, but emphasized recent data on global activity and inflation have remained resilient.

The bank also noted the process of monetary policy tightening in major economies continued to advance, following the Federal Reserve's decision to continue raising U.S. interest rates.

"Given the expectation, I found the statement to be more hawkish," said Gustavo Arruda, Director of Research for Latin America at BNP Paribas.

"It will probably decrease the probability of interest rate cut scenarios in the next policy meetings," he added, predicting rates unchanged until May next year.

While policymakers emphasized the government decision to resume fuel taxes has helped to improve public accounts, they said highly volatile financial markets and long-term inflation expectations beyond their targets "require further attention when conducting monetary policy."

Inflation has cooled to 5.6% in the 12 months through February, but it is still far above this year's 3.25% official target. Meanwhile, the central bank's inflation expectations have risen to 5.8% for 2023 and 3.6% for 2024. Next year, the target is 3%.

Lula has repeatedly called for lower borrowing costs, describing the current Selic rate "irresponsible" on Tuesday. In a sample of the criticisms that will follow, his chief of staff, Rui Costa, said late on Wednesday that the policy decision "only increases unemployment and the suffering of the Brazilian people."

Lula put off a proposal for new fiscal rules to keep a lid on public debt levels – one of several upward inflation risks flagged by the central bank.

China Evergrande New Energy Vehicle Group Ltd (0708.HK) said on Thursday it may have to halt production of electric vehicles (EVs) if it could not obtain fresh funding, after delivering more than 900 units of its flagship Hengchi 5 model.

The EV manufacturing unit of the embattled developer China Evergrande Group (3333.HK) said it was aiming to cut costs through measures such as reducing staff numbers and improving management efficiency.

"In face of the inability to obtain additional liquidity, the Group is at risk of discontinuing production," it said.

If, however, it could obtain financing of more than 29 billion yuan ($4.2 billion) "in the future", it aimed to launch a number of flagship models and hoped to achieve mass production, the company said in a statement.

Under that plan, the cumulative unleveraged cash flow from 2023 to 2026 was expected to reach negative 7 billion yuan to a negative 5 billion yuan.

The news comes after its parent, China Evergrande Group, on Wednesday announced plans for the restructuring of its $22.7 billion in offshore debt, which could set a template for distressed rivals in the country's property sector. read more

The unit previously said it would start mass production of its second EV model in the first half of 2023 and a third in the latter half of this year.

It had also said it aimed to make 1 million vehicles a year by 2025.

In December, the unit said it was laying off workers and cutting the salaries of some employees as a part of its cost-reduction measures.

The EV unit is key for the transformation plans of Evergrande, once China's top-selling property developer and now at the center of a deepening debt crisis.

Shares of the unit have been suspended since April 2022.

($1 = 6.8802 Chinese yuan)

Citigroup Inc (C.N) Chief Executive Officer Jane Fraser expressed confidence in the U.S. banking system after a series of U.S. bank failures rattled investors and fueled turmoil across global financial markets.

The banking sector is "pretty sound," despite high-profile bank closures, Fraser told the Economic Club of Washington D.C. "This is not a credit crisis," she said.

The fourth-largest U.S. lender is not interested in buying beleaguered First Republic Bank (FRC.N), Fraser added.

Citi was one of 11 major banks to contribute a combined $30 billion in deposits to First Republic last week to help it buy more time to restructure, she said.

The U.S. nominee to lead the World Bank, former Mastercard (MA.N) CEO Ajay Banga, returns to his native India on Thursday, capping a three-week global tour to drum up support and discuss development and climate needs with donor and borrowing countries.

The Treasury said Banga will visit New Delhi on March 23 and 24, where his likeness has already been posted on billboards. He will meet with Prime Minister Narendra Modi as well as the minister of finance, Nirmala Sitharaman, and the minister of external affairs, Subrahmanyam Jaishankar.

"These discussions will focus on India’s development priorities, the World Bank, and global economic development challenges," the Treasury said in a statement.

India’s government endorsed the candidacy of Banga, a longtime finance and development executive who is now a U.S. citizen, soon after his nomination was announced in late February.

He has won the support of enough other governments to virtually assure his confirmation as the next World Bank president, including Britain, France, Germany, Italy, Japan, Bangladesh, Colombia, Egypt, Ivory Coast, Kenya, Saudi Arabia and South Korea.

The World Bank will accept nominations from other countries until March 29, but no competitors have been announced. The World Bank has been led by an American since its founding at the end of World War Two, while the International Monetary Fund has been led by a European.

U.S. President Joe Biden last month nominated Banga, 63, to replace David Malpass, who announced his resignation after months of controversy over his initial failure to say he backed the scientific consensus on climate change.

In India, Banga will also visit a vocational skills development institute funded in part by the World Bank, the Treasury said.

Over the past month, Banga has met with government officials, civil society groups, business leaders and other stakeholders on a "global listening tour" that started in Africa before progressing to Europe, Latin America and Asia.

China is expected to account for around 40% of the increase in global oil demand this year as its economy emerges from strict lockdowns, but the increased use will not take prices back to 2022 levels, consultancy Wood Mackenzie said on Thursday.

In a base-case scenario, China's economy will grow by 5.5% this year after it lifted its COVID containment strategy, WoodMac said in a report.

This would equate to 1 million barrels per day (bpd) of a 2.6 mln bpd increase in global oil demand this year.

A high-growth scenario, under which China's GDP rises by 7%, would add a further 400,000 bpd of Chinese demand, the report said.

This year's average price of Brent crude oil , however, would remain below the $99/bbl average seen in 2022 as "markets have now adapted to the chaos brought about by Russia's war on Ukraine," the report said.

Barring a significant recession, WoodMac sees Brent rising from current levels of around $75/bbl, to average $89.40/bbl this year. The higher GDP growth scenario in China would add up to $5/bbl.

Following this month's market turmoil in the banking sector, the group said it did not see any major changes to fundamentals of supply and demand and expects oil prices to recoup losses, Mark Williams, WoodMac's research director for short-term oils, told reporters at a briefing.

Global refining margins are set to decline to around $6/bbl in the fourth quarter compared with $11/bbl a year earlier, WoodMac said, as additions to global refining capacity outpace demand growth for transport fuels.

The higher GDP growth scenario would lower China's exports of gasoline, jet, diesel, and gasoil as domestic consumption rises, supporting global refining margins by a further 50 cents/bbl in the fourth quarter, the report found.

"We have over 2 mln bpd of [refining] capacity coming online this year. Losing an additional 100,000 bpd of China exports my not be the end of the world," Williams said.

The consultancy expects diesel profit margins to crude to average $30/bbl in the fourth quarter, while gasoline is expected to average around $5-6/bbl, Williams said.

• Investors now expect quarter-point rate hike on Thursday
• Market split was 50-50 before Wednesday's inflation data
• Investors see possibly two further 25 bps hikes
• BoE must reconcile slow growth, high inflation
• BoE must also contend with recent global bank worries

The Bank of England is expected to raise interest rates for the 11th time in a row on Thursday after a surprise jump in inflation dashed speculation that it might have been about to go on pause.

The BoE is trying to reconcile Britain's weak economic outlook and the worries about global banks with stubbornly high price growth, and it is due to announce its latest decision on rates at 1200 GMT.

Most economists had believed inflation was on course to fall steadily, after hitting a 41-year high above 11% in October.

But Wednesday's data - showing inflation rising to 10.4% in February rather continuing its descent - immediately turned Thursday's announcement into an almost one-way bet on a quarter percentage-point increase in Bank Rate.

As recently as Tuesday, investors were split almost 50-50 on whether the BoE would leave Bank Rate unchanged for the first time since November 2021.

Bets earlier this week on the BoE halting its run of rate hikes were further bolstered by the rescue of Credit Suisse and the collapse of Silicon Valley Bank which showed how some global banks were struggling to adjust to higher borrowing costs.

But investors in rate futures markets are now positioning for possibly two more 25-basis-point moves by the BoE by September after Thursday's expected hike.

On Wednesday, the U.S. Federal Reserve raised its main interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing further increases. The European Central Bank last week stuck to its plans and raised rates by 50 basis points despite the Credit Suisse turmoil.

While some of the increase in the headline rate of British inflation announced on Wednesday was due to potentially one-off factors such as cold weather in Spain and North Africa which caused vegetable shortages, the underlying inflation measures that the BoE watches also rose.

Ben Nicholl, a fund manager with Royal London Asset Management, said the inflation jump was a "shocking data point" which added to other signs that the BoE will struggle to bring inflation all the way back down to its 2% target.

"It was only back in November when the BoE were sitting there saying: 'We are going into one of the longest recessions the UK has ever experienced'. Well, we've avoided recession for now," Nicholl said.

Pay growth is cooling but still running far above its historical average and shortages of workers remain acute which threatens to keep inflationary heat in the labour market.

The BoE was the first major central bank to start raising rates in December 2021 and had seemed likely to join the Bank of Canada which this month stopped raising borrowing costs.

BoE Governor Andrew Bailey and his colleagues last month dropped language saying that they were ready to act forcefully if the outlook suggested persistent inflationary pressures.

Thursday's announcement by the BoE is set to be limited to its Monetary Policy Summary and the minutes of its March meeting. No news conference by Bailey and his top colleagues is scheduled although Bailey is due to make a speech on Monday.

ING economist James Smith said he expected a rate hike on Thursday was likely to prove the last in the BoE's run.

"Assuming the broader inflation data continues to point to an easing in pipeline pressures, then we suspect the committee will be comfortable with pausing by the time of the next meeting in May," Smith said.

• March manufacturers' sentiment index -3 vs -5 in Feb
• Service-sector index +21 in March vs +17 in Feb
• Manufacturers' mood seen up ahead, service-sector down
• Reuters Tankan closely correlates with BOJ tankan

Big Japanese manufacturers remained pessimistic about business conditions for a third straight month in March, the closely watched Reuters Tankan survey showed, reflecting worry about slowing global growth that could hurt the country's export engine.

Service-sector firms' mood rebounded in a sign of domestic demand-driven recovery, in which the prospects of higher wages among big firms at the spring labour talks may encourage households to spend their way out of the COVID-induced doldrums.

The mixed results underscored the fragility of the world's No.3 economy as exports slow and private consumption, that accounts for more than half the economy, lacks momentum.

The Reuters Tankan, designed to closely track the Bank of Japan's key quarterly tankan survey, suggested the central bank's survey due next April 3 will likely show deterioration in business confidence at big manufacturers.

Problems at some western banks added to risks to external demand that already faces the impact of global tightening and a slowdown in China, Japan's biggest trading partner, while a weak yen boosts import costs of commodity-driven inflation.

"Price hikes caused by the war in Ukraine and U.S.-China trade frictions have made our clients cautious about capital expenditure," a manager of a machinery maker wrote in the survey.

The sentiment index for big manufacturers stood at minus 3, slightly up from minus 5 seen in the previous month, according to the survey conducted March 8-17. Materials industries such as steel and textiles as well as electrical machinery firms were among the hardest hit.

Compared with three months ago, the manufacturers' index was down 11 points, suggesting worsening of sentiment in the BOJ tankan's headline big manufacturers index.

The Reuters Tankan index is expected to rebound to plus 10 over the next three months.

The large service-sector firms' index rebounded to plus 21 in March from plus 17 seen in the previous month. The index is expected to fall to plus 16 in June.

The Reuters Tankan, which closely tracks the central bank's quarterly tankan survey, canvassed 493 large companies with a capital base of 1 billion yen employing 100 or more people.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.

Bankrupt crypto exchange FTX has reached a deal to recover more than $400 million in cash from hedge fund Modulo Capital, pulling back 97% of the money that FTX companies sent to the hedge fund in 2022, according to court documents filed on Wednesday.

Bahamas-based Modulo agreed to pay $404 million in cash and give up its claim to $56 million in assets held on FTX's crypto exchange, according to a filing in U.S. bankruptcy court in Delaware.

FTX filed for bankruptcy protection in November, saying it was unable to completely repay customers who had deposited funds on its exchange. FTX's new CEO, John Ray, has said his top priority was recovering assets to repay FTX customers.

FTX's affiliated hedge fund Alameda Research sent $475 million to Modulo in a series of transfers beginning in May 2022, a time when FTX was losing money and heading toward bankruptcy, according to the court filings.

Alameda, at the direction of FTX founder Sam Bankman-Fried, had paid $25 million to acquire a stake in Modulo and contributed $450 million to an investment fund managed by Modulo, according to the filings.

The settlement recovers most of those payments and takes 99% of Modulo's remaining assets, according to the filings.

FTX and Alameda will give up their claim to any ownership of Modulo as part of the settlement. FTX also agreed to not take further actions against Modulo or its principals Xiaoyun Zhang and Duncan Rheingans-Yoo related to the 2022 payments, according to the filings.

FTX, Bankman-Fried, and Modulo Capital did not immediately respond to requests for comment.

FTX has previously recovered more than $5 billion in its quest to repay customers of the bankrupt crypto exchange. FTX said last week that it was investigating more than $3.2 billion that was transferred out of the company through payments and loans to company founders and key employees.

Bankman-Fried has been charged with stealing billions of dollars in FTX customer funds to cover losses at Alameda Research, and making tens of millions of dollars in illegal political donations to buy influence in Washington, D.C.

He denies wrongdoing and is fighting to stay out of jail pending his scheduled Oct. 2 fraud trial.

The Federal Deposit Insurance Corporation (FDIC) has moved the bid deadline for Silicon Valley Private Bank to Friday from Wednesday, according to a source familiar with the matter.

The private bank caters to high net-worth individuals and offers wealth management services.

The bids for the unit were initially due at 8 p.m. ET on Wednesday.

Earlier this week, the FDIC decided to break up Silicon Valley Bank and hold two separate auctions for its traditional deposits unit and its private bank after failing to find a buyer for the failed lender last week.

The FDIC, which has held the lender under its receivership since earlier this month, declined to comment.

The regulator's move was first reported by Bloomberg News.

The United Nations wants to get people talking in New York this week about investing in safe water, sanitation and hygiene, which it describes as "the most basic human need for health and wellbeing".

Puzzles remains over how best to count the financial, social and environmental costs and benefits of water, but many investors now state an aim to generate returns while also improving water access and quality.

Here are some examples of the business of water.

Non-profit group CDP says firms have identified ways to use less water or respond to an increasingly resource-conscious market. These range from more efficient cooling systems for power generation to selling new products such as rinse-free soap in a market CDP calculates could be worth a combined $436 billion.

Shares in large groups that provide water-related services are listed on national stock exchanges, including household names such as Britain's 7-billion-pound ($8.6 billion) Severn Trent (SVT.L) and American Water Works (AWK.N), which operates across 14 U.S. states and is valued at around $27 billion.

A group of experts established by the Dutch government is proposing "Just Water Partnerships" in which development finance institutions would invest alongside private firms to improve water systems in lower-income countries.

The World Bank and some national governments have already launched public-private structures aimed at reducing the planet-warming impact of greenhouse gas emissions, with partners including lender Citi and asset manager BlackRock.

There are about 80 funds globally which specialise in investing in the theme of water, according to data provider Morningstar.

One of those, the Calvert Global Water Fund, tracks the performance of an index of companies that "are offering products or services that are part of a solution to global water challenges," said portfolio manager Jade Huang.

These range from Italian pump maker Interpump (ITPG.MI) to United Utilities Group (UU.L) and firms in water-intensive sectors such Taiwan Semiconductor Manufacturing Co (2330.TW).

"There is no one-size-fits-all approach that can help to approach the many aspects of dealing with water challenges," Huang added.

New York-based Water Asset Management launched its first fund in the sector in 2006. It runs vehicles that invest in water quality and supply-related companies and assets, and has now launched platforms that allow collective investments by retail investors.

"Purpose and profit in the water industry have been bedfellows for 1,000 years," said Matthew Diserio, Water Asset Management's president.

Sciens Capital Management in New York started working on bringing together the tens of thousands of smaller utility businesses in the United States eight years ago, and closed its Water Opportunity Fund last summer with committed capital of $850 million.

"We would go around in a pickup truck and look at these broken water systems that service 100, 200 or 300 people, and we have aggregated that," partner Alex Loucopoulos said.

"I feel like we are just getting started here because of the magnitude of the problems that need to be fixed," he added.

Traders can buy and sell futures contracts - agreements to buy in the future for prices agreed today - based on the price of water in California on the Nasdaq Veles California Water Index.

Lance Coogan, who developed that concept for water price indexing, describes it as "the volume-weighted average of the actual water transactions that are taking place".

"People were buying water in the western United States and not knowing what the guy down the road was doing, so we worked out the formula and put that price up on a screen," Coogan said.

"I was astonished that you can get derivatives on every commodity in town: wheat, pork bellies, whatever you want, but no water. How can you have those things without having the water price?" he added. "A more efficient market means cheaper water and cheaper food."

In Australia, rights to share water resources or receive irrigation for crops can be bought and sold. A 2021 government-led inquiry called for reform of the markets' governance, although it said water trading had allowed irrigators to increase access to water and earn income from selling rights.

A U.N. Special Rapporteur on water questioned in 2021 whether it was right to use market tools like pricing based on supply and demand on water, saying it should be managed as a public good fundamental for life, rather than as a commodity that can be traded.

Pedro Arrojo Agudo argued specifically against water being managed in futures markets, suggesting this could lead to price volatility and speculative bubbles. He also called for stronger regulation around managing concessions and said private investment in water infrastructure was reducing the quality of service.

($1 = 0.8173 pounds)

Boris Johnson is an honest man. It is possible to tell this by the sheer number of times he declares his honesty. In his written submission to the committee of MPs investigating whether he intentionally misled Parliament over Partygate, the word “honest” popped up around 20 times in one form or another. In a three-hour hearing on March 22nd he offered yet more honesty, at one point even “hand on heart”. And little speaks more of honesty than declaring your honesty 20-odd times in two days.

Mr Johnson first came to national attention on a BBC comedy show called “Have I Got News for You”. Watch it now and those episodes feel more like a prophecy: the privileges committee, with clapping. Everything is there: the hair; the bluster; the accusations of wrongdoing. And, of course, the honesty. When asked then about an alleged crime, he replied: “Honestly, I don’t remember.”

It didn’t matter then. He was so funny, so blond, so charismatic. As the show’s host at the time said: “Everyone’s going to love you.” And large parts of Britain did—as an MP, then as mayor of London, then all the way to Downing Street. And Mr Johnson loved Britain back, so much so that he became the first British prime minister whose exact number of children is unknown.

The act seems now to be drawing to a close. The committee hearing was another panel, another show. But the mood of “Have I Got Pixellated Photos For You” was less jolly. The boozy Downing Street gatherings during lockdown are known as the Partygate scandal. But the aura of the hearing was pure hangover. Mr Johnson’s mood alternated between testy (“complete nonsense”, he spat at one point) and the kind of repentant abstinence that follows overindulgence. A man who once said he was pro having cake and pro eating it emphasised that, at his 2020 birthday gathering, “the cake remained in its Tupperware box”.

Mr Johnson did attempt a little bonhomie: he talked of “electric forcefields” and “higgledy-piggledy corridors”. But his audience was less interested in higgledy-piggledy corridors than in pages 30, 40 and 41 of the evidence bundle: might he refer to it? Above all they referred him to the photographs—an entire appendix of awkwardness, with bottles of wine and crisps and a regrettable takeaway on a silver platter.

There were other regrettable takeaways for Mr Johnson from all this. If the committee finds against him, it may set in train a process that ends in him leaving Parliament. But whatever its verdict, he looks done for. On the day he fended off questions about alcohol and trestle tables, MPs approved the Northern Irish deal negotiated by Rishi Sunak. His polling is down; his chances of hitting the political heights again are slim. He might admit as much, if he were being honest with himself. ■

Twenty years ago, President George W. Bush stood before the American people and proposed a radical intervention to head off a growing menace in one of the world’s most troubled regions. “Seldom has history offered a greater opportunity to do so much for so many,” he said in his state-of-the-union message in 2003.

The years would prove him right. Millions more people would have died of HIV/AIDS in Africa if Mr Bush had not defied his party’s isolationist wing, ever contemptuous of foreign assistance, and pressed Congress to spend billions of dollars on what became, at least pre-covid, the largest commitment ever by a nation to fight a single disease. Mr Bush’s initiative was not just compassionate but wise. Would that it was his defining act.

In that same speech Mr Bush pivoted from his few sentences about fighting AIDS to the threat he said Saddam Hussein posed to America and his own people. “If this is not evil,” he said, in his moralistic key, “then evil has no meaning.” He said that the secretary of state, Colin Powell, would soon disclose intelligence to the UN Security Council about Iraq’s weapons programmes and links to terrorists. But he made clear that, if he thought it necessary, he would act against Saddam without the UN’s blessing.

Pick a sorrow from the millions that ensued: an Iraqi child who lost both parents to an American missile; a man standing on a box in the Americans’ Abu Ghraib prison with a sack over his head and his arms spread, wires twisting from his fingers; an American veteran who cannot stop drinking, cannot sustain a relationship, cannot sit without his back to a wall. Any one is enough to make you wish you could run back down the hall of history, calling to Mr Bush to stop. You need not even pause to survey the bigger picture—the empowerment of Iran, the rise of Islamic State, the metastasis of the Syrian civil war, the soiling of America’s image, and self-image, as competent, honest and decent.

There were voices raised against the invasion, of course, but America’s interlocking political, security and media elites—its establishment—rallied behind it. During a Senate debate over the Iraq-war authorisation, Senator Joe Biden recalled “the sin of Vietnam” and “the failure of two presidents to level with the American people” over that war’s costs. Then he voted for the measure. Three years later, he called that vote a mistake.

Not all America’s woes can be traced to that fateful invasion, when America’s arrogance rather than its generosity—the flip sides of its idealism—became its global calling-card. The global financial meltdown later that decade rounded out the failure of the establishment. But the Iraq war propelled America down the road to Donald Trump.

Barack Obama represented hope of sharp change from Mr Bush, yet those two leaders were much more like each other than like the president who came next. They obeyed the conventions of American politics, probably unaware of how brittle those had become: that expertise mattered; that the press, though flawed, was after the truth; that the meritocracy was real; that not everyone was out just for money and power. They both promoted two central ideals of American public life: that in the world America had causes beyond the pursuit of raw national interest, and that at home the national interest superseded the political one.

Mr Trump told Americans what they had come to suspect, that all this was crap. America should have taken Iraq’s oil. Generals could be fools, and even so-called war heroes could be losers. America should use more severe forms of torture than waterboarding. China was raping America while its leaders did nothing. The press lied. The experts lied. Politicians, of course, lied all the time. The establishment was out for itself. You were a sucker if you did not assume corruption and self-seeking were the essentials of human behaviour. “You think our country’s so innocent?” Mr Trump said, when asked how he could defend Vladimir Putin.

Mr Biden, a throwback in so many ways, is trying as president to restore the idea of American idealism. America is meant again to be the guardian of a rules-based international order. Much has been made of the administration’s decision, on the eve of Russia’s invasion of Ukraine, to share intelligence about what was to come. Yet that is what Mr Powell did, in greater detail, at the United Nations. The difference was that this time the intelligence was correct. This time America has matched its words and deeds. It has sought and sustained support within the UN. It has led competently, in Ukraine if not Afghanistan, and meant what it said about rights and democracy. So far.

Who are the trusted?

Mr Biden recently recalled how, after he assured European leaders two years ago that America was back in the struggle against autocracy and climate change, Emmanuel Macron of France replied: “For how long?” Mr Biden is right to feel haunted by that challenge. If Mr Trump has his way with the Republican Party, and he usually does, it will swing from imagining just 20 years ago it would swaddle the planet in democracy to advocating its surrender to Russian dominion in Europe.

At home, idealism may seem to be staging a comeback, but that is only on the surface. On the right, the American Greatness school has yet to clothe Trumpism in an ideology amounting to more than grandiose self-interest. On the left, identity politics has licensed the meritocratic elite—including the new socialists—to ignore class, to celebrate their own enlightenment and to feel contempt for poor white Americans. Americans’ embrace of consoling ideologies is making them even more righteous and credulous than they were on the eve of the Iraq war, provided the propaganda comes from their own side.

Mr Bush is said not to regret the Iraq war. He should. In service to his decency rather than his hubris, his persistence might have endured as an example for a far better America. ■

JPMorgan (JPM.N) Chief Executive Jamie Dimon is scheduled to meet with Lael Brainard, the director of the White House's National Economic Council, during the executive's planned trip to Washington, according to a person familiar with the situation.

Reuters could not establish the agenda of the meeting that was planned.

The meeting comes as First Republic Bank's (FRC.N) efforts to secure a capital infusion continued on Wednesday, as the troubled regional lender started to plan for the possibility it may need to downsize or get a government backstop.

The CEOs of major banks gathered in Washington for a two-day scheduled meeting which started on Tuesday, sources familiar with the matter previously said. The quarterly meeting of the Financial Services Forum included Dimon and Bank of America Corp (BAC.N) CEO Brian Moynihan, who head the nation's two largest lenders, the sources said.

The banks were aiming to work out details for what needs to be done for First Republic within the coming 24 hours, another source said.

Eleven lenders, including the eight members of the Financial Services Forum, threw First Republic a lifeline of a combined $30 billion in deposits last week.

Major banks and private equity firms have so far balked at offering First Republic the capital infusion it craves for fear of releasing losses on the bank's loan book and investment portfolio amid a rise in interest rates.

On Tuesday, Reuters reported First Republic is examining how it can downsize and sell parts of its business, including some of its loan book, in a bid to raise cash and cut costs.

U.S. Treasury Secretary Janet Yellen said that banks across the United States are worried about contagion and have been shoring up liquidity to protect themselves from runs prompted by the failures of Silicon Valley Bank and Signature Bank.

Yellen told a Senate Appropriations subcommittee hearing that over the past two weeks, many mid-sized banks expressed "great concern" to the Treasury about their uninsured deposits.

"Many of these banks felt very skittish about their potential to suffer runs as well," Yellen said. "We can see that banks across the country are shoring up their liquidity, they are very worried about contagion from the troubles of Silicon Valley Bank and Signature Bank. And the steps we took were designed to improve the confidence of all depositors that they're safe in banks."

The job of central bankers is to keep banks stable and inflation low. Today they face an enormous battle on both fronts. The inflation monster is still untamed, and the financial system looks precarious.

Stubbornly high inflation led the Federal Reserve to increase interest rates by a quarter of a percentage point on March 22nd, less than a week after the European Central Bank raised rates, too. The Fed acted days after three mid-sized American banks had collapsed and Credit Suisse, a grand old Swiss bank with more than SFr500bn ($545bn) in assets, suffered a wounding run that ended in a shotgun wedding with its rival, ubs. Bankers led by Jamie Dimon, the boss of JPMorgan Chase, are trying to shore up First Republic, the next teetering domino.

The trouble is that central bankers’ two goals look increasingly contradictory. All but the biggest American banks are suffering from the consequences of higher interest rates. Dearer money has reduced the value of their securities portfolios and has made it likelier that depositors will flee to big banks, or to money-market funds. Cutting interest rates would help the banks; so does backstopping the financial system. But either option would stimulate the economy and make inflation worse.

It was not meant to be like this. New rules introduced after the financial crisis of 2007-09 were intended to stop bank failures from threatening the economy and the financial system. That, in turn, was supposed to leave monetary policy free to focus on growth and inflation. But the plan has not worked, obliging central banks to perform an excruciating balancing act.

Consider the humbling of Credit Suisse. Regulators are supposed to be able to “resolve” a failing bank in an orderly fashion over a weekend by following a plan to wipe out shareholders and write down convertible bonds (or convert them to equity). But Credit Suisse’s demise has sowed uncertainty and confusion. Instead of winding down the bank, Swiss officials pressed UBS to buy it, providing generous taxpayer-backed loans and guarantees to make the deal work and even passing a law to make the terms watertight.

Although regulators wrote off the bank’s convertible bonds, shareholders still received $3bn, upending the expected preference of bondholders over stockholders. One reading of the bond contracts’ small print is that this inversion was allowed. Even though regulators in Britain and the eu were quick to insist that they would respect the usual order of creditors, the Swiss departure from the norm has inevitably shaken investors’ faith, creating doubt about what might happen with the next bank failure.

America’s improvised rescue of all the depositors of Silicon Valley Bank and Signature Bank could also have a corrosive effect. Deposits above a cap of $250,000 per customer are not formally insured by the federal government. But nobody is sure which larger depositors would be bailed out if a bank failed. Jerome Powell, the chairman of the Fed, said on March 22nd that depositors “should assume” they are safe. The same day Janet Yellen, the treasury secretary, said expanding insurance to all depositors is not under consideration. Meanwhile, the Fed has lent $165bn through its newly generous lending schemes, which shield banks from the risks of holding long-dated securities.

As we were about to publish this, it looked as if First Republic would survive without more state intervention. Nonetheless, the combination of banks’ travails and regulatory uncertainty could yet harm the economy.

One source of pain could be America’s small and mid-sized banks. Banks with less than $250bn in assets account for about half of banking assets and 80% of loans for commercial property, a sector that has been vulnerable since the pandemic. If smaller banks continue to lose deposits or if they need to raise capital because investors or regulators doubt their safety, then they could limit the loans they make, slowing economic growth and inflation.

Another cause for concern is credit markets. The extra yields paid by the riskiest firms to borrow have risen and in some markets credit seems to be drying up. Worries about tighter financial conditions have led markets to pare back their bets on high inflation even as they have priced in interest-rate cuts.

As they weigh this precarious economic outlook, central banks must also be cautious about the signals they send. Because they regulate banks, they have special insight into the health of the financial sector. One reason the Fed was right to raise rates this week was that a sharp u-turn would have caused panic about what the central bank knew that markets didn’t.

Where to go from here? The essential aim is to fix the regulatory regime, so that central banks remain free to fight inflation. A big task is to revisit the measures that ensure one bank failure does not spill over into the next. If needs be, policymakers must be able to recapitalise a failing bank by writing down bonds or converting them to equity. And it should be clear that shares will first be written off entirely.

In America the appeal of insuring all depositors is that they would then have no incentive to flee from smaller banks. But the real problem is lax capital rules for banks with less than $700bn in assets and inadequate planning for the failures of banks with under $250bn. Offering universal deposit insurance without fixing those problems would encourage excessive risk-taking. Banks would remain fragile yet be freed from any scrutiny by large depositors.

Don’t look down

Until the banks are fixed, monetary policymakers have no choice but to take into account the dangers they pose to the economy. The Fed must scrutinise the lending behaviour of affected banks and build it into its economic forecasts, and also keep a close eye on credit markets. It would be a mistake to stop fighting inflation to preserve banks. But inflation also needs to be brought down in a controlled manner, and not as a result of the chaos of a financial crisis and the economic agonies it would bring. Central bankers already faced a narrow path to success. The ravines on either side of it have become deeper. ■

Back in the 1950s, a young British officer known as the district commissioner was ensconced in a charming seafront mansion from which he lorded it over the locals of Lamu, an island off the north-eastern coast of what was then the colony of Kenya. “The place was magical,” he wrote in an essay published half a century later. “Enchanted, I fell under its spell.”

The locals were Muslims, proud of a heritage known as Swahili that is a hybrid of Arab and mainland African culture from inland, lending its name to the local language and people. The pace of life was steady, to put it mildly. “Most of them regarded all forms of change with the gravest suspicion,” wrote that former administrator, Peter Lloyd. “The town itself reflected their attitude, being the epitome of changelessness. As just one example, my palatial residence had been completed in 1892, yet everybody still called it ‘the new house’.”

And what a house! Despite the absence of both electricity and piped water and the presence of a multitude of bats, it was a place of delights. So vast that I occupied only a small part of the building…Whole families were established elsewhere in it, claiming to be descendants of slaves of its original owner, with squatters’ rights. In return they performed odd jobs, like bringing up water from the cistern. I even discovered, after living there for several months, that someone had started a shop in the back premises.

After Kenya won its independence in 1963, the house fell into disrepair. But in 1970 Jim Allen, an Anglo-Kenyan scholar with an engagingly grumpy air and an almost obsessive love of Lamu, persuaded the government to convert it into the Lamu Museum. Allen became the founding director, filling the dusty and dilapidated rooms with an array of paraphernalia from up and down the coast.

Following Allen’s departure in 1974 and death 16 years later, the museum’s fortunes ebbed and flowed, lacking funds and dynamic leadership. The building at last looked truly old. The antique cannon by the front door still pointed out across the channel, where dhows with traditional triangular sails go gently by. But few people, locals or tourists, bothered to pass through the handsomely carved wooden portal.

In the past few years, however, it has undergone a revival, thanks to funds from the sultanate of Oman, whose still-reigning al-Busaidi dynasty once ruled much of the east African coast. Last month the museum was reopened with much fanfare by Kenya’s minister of tourism, wildlife, culture and heritage. The renovation shows how, nowadays, history is sometimes told not by the winners, but by the funders.

The museum is now spick and span. There is no sign of bats or any other random detritus from the days of Lloyd or even those of Allen, though heavily laden donkeys still trot past (cars remain banned on the island). But the locals are taken aback. For the emphasis of the heritage narrated inside, captioned in Swahili, English and Arabic, is almost entirely Omani. There are models of a newly constructed town and recently restored buildings—all of them in Oman. Whole rooms and galleries, replete with videos, are dedicated not to Lamu but to Oman.

The old museum’s fanciest and most valuable artefact, a side-blown horn known as a siwa—carved with intricate beauty out of an immense elephant tusk—has been dispatched to Nairobi, Kenya’s distant capital, reportedly for security reasons. An elderly museum guide, disconsolately showing your correspondent around, muttered, “Oman! Oman! Oman! Why no Lamu?” Mohammed Mwenje, the museum’s director, says his team are still working on the part of the exhibition that will be devoted to the island. Most of the relevant items, he maintains, “have not yet returned from storage”.

The entrance hall, meanwhile, is graced with two grand portraits, side by side, of the recently elected president of Kenya, who hails from 700km (435 miles) away, and the sultan of Oman. Allen, the museum’s founder, widely credited with putting Lamu on the cultural map when it was a hidden backwater, is unmentioned.

More controversially, so is the topic of slavery, which the Omani elite practised well into the 20th century. From around 1700 until the British arrived in the late 19th century, the sultanate of Oman ruled a coastal strip that stretched down to include Zanzibar (which is now part of Tanzania). Zanzibar became an entrepot for dates, cloves, carpets, mangrove poles and—not least—slaves. At one time slaves were reckoned to make up at least half of its population.

In 1907 Zanzibar’s sultan, a scion of the Omani al-Busaidi dynasty, was forced by his British overlords to outlaw the practice up and down the coast. Nevertheless, “perhaps half of [Lamu’s] slave population, including whole families, remained under a system of de facto, if not de jure, slavery,” according to the American Historical Review (AHR) in 1983. In his nostalgic essay, Lloyd relates how in the 1950s some visiting Omani luminaries made a suggestion. The British were then detaining many hundreds of rebellious Mau Mau fighters, mostly ethnic Kikuyus from far inland, in prison camps along the coast. Why not, said those bigwigs, send them off to Oman—as slaves?

“In form and under Islamic law,” recounts the AHR, “the institution of slavery continued in some measure, and among some families, until Kenya achieved independence.” The result was one of Africa’s bloodiest revolutions, when the Omani family’s Zanzibari branch—which still reigns in Oman today—was finally overthrown in 1964. Even after that, says the ahr, de facto slavery endured on Lamu into the 1980s, “by collusion among the old Afro-Arab families (including relatives of the sultan)”. It may have lasted even longer.

The old house has been beautifully restored, yet its antiseptic makeover has scraped away some of its mystery and romance. The sanitisation of the past has dulled its impact. The underlying lesson is that, if you bankroll a museum and its telling of history, you can stamp your own memory on them. Not all the people of Lamu are pleased. ■

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Federal Reserve Chair Jerome Powell said on Wednesday the sharp reversal of the central bank's effort to shrink the size of its balance sheet in the wake of the collapse of Silicon Valley Bank does not mean it is using its holdings to provide renewed stimulus to the economy.

"The balance sheet expansion is really temporary lending to banks” and “it’s not intended to directly alter the stance of monetary policy," Powell said at his press conference following the Federal Open Market Committee meeting.

Last week, a surge of borrowing by banks, most notably via a record $153 billion in lending via the discount window, caused the Fed's overall stockpile of cash and bonds to leap from $8.4 trillion on March 8 to $8.7 trillion as of one week ago. That unraveled months of efforts to reduce the size of the Fed's footprint in bond markets.

The Fed's balance sheet, fueled by aggressive buying of Treasury and mortgage debt as a form of stimulus initiated in the wake of the onset of the coronavirus pandemic, topped out last summer at just shy of $9 trillion.

Since last fall the Fed has been allowing just short of $100 billion per month of bond holdings to expire and not be replaced, allowing its balance sheet to shrink. That effort complemented aggressive rate rises aimed at lowering high levels of inflation.

The Fed raised rates again by a quarter percentage point on Wednesday and signaled that while the banking sector stresses are clouding the outlook, official have penciled in one more 25 basis point increase this year.

It's unclear whether the emergency bank borrowing will stay high or ebb. But in his comments Wednesday Powell said officials are not currently contemplating any changes in the core effort of reducing holdings.

"We haven't really talked about changing the balance sheet implementation," Powell said, although he added "we're always willing to change that if we believe it's appropriate."

Fed holdings surged last week due to record discount window lending to banks and other credit extensions that happened in the wake the collapse of Silicon Valley Bank.

OPENAI’s CHAT GPT, an advanced chatbot, has taken the world by storm, amassing over 100 million monthly active users and exhibiting unprecedented capabilities. From crafting essays and fiction to designing websites and writing code. You’d be forgiven for thinking there’s little it can’t do.

Now it’s had an upgrade. GPT-4 has even more incredible abilities, it can take in photos as an input, and deliver smoother, more natural writing to the user. But it also hallucinates, throws up false answers, and remains unable to reference any world events that happened after September 2021.

Seeking to get under the hood of the Large Language Model that operates GPT-4, host Alok Jha speaks with Maria Laikata, a professor in Natural Language Processing at Queen Mary’s university in London. We put the technology through its paces with the economist’s tech-guru Ludwig Seigele, and even run it through something like a Turing Test to give an idea of whether it could pass for human-level-intelligence.

An Artificial General Intelligence is the ultimate goal of AI research, so how significant will GPT-4 and similar technologies be in the grand scheme of machine intelligence? Not very, suggests Gary Marcus, expert in both AI and human intelligence, though they will impact all of our lives both in good and bad ways.

For full access to The Economist’s print, digital and audio editions subscribe at economist.com/podcastoffer and sign up for our weekly science newsletter at economist.com/simplyscience.

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Bitcoin dropped 4.5% to $26,916 at 20:07 GMT on Wednesday, losing $1,276 from its previous close.

Bitcoin, the world's biggest and best-known cryptocurrency, is down 7% from the year's high of $28,936 on March 22.

Ether , the coin linked to the ethereum blockchain network, dropped 4.67 % to $1,722.6 on Wednesday, losing $84.3 from its previous close.

Incyte Corp (INCY.O) said on Wednesday its monoclonal antibody, Zynyz, has won accelerated approval from the U.S. health regulator for treating a rare and aggressive type of skin cancer in adults.

The U.S. Food and Drug Administration approved the therapy in Merkel cell carcinoma (MCC) patients for whom the cancer has come back or spread to other parts of the body.

The company said it expects Zynyz will be available to eligible patients by early April.

MCC impacts less than 1 per 100,000 people in the U.S. but incidence rates are rising, the company said.

Zynyz belongs to a class of drugs known as PD-1 inhibitors that help the immune system to attack cancer by blocking a mechanism tumors use to evade detection.

Incyte said the monthly price of treatment with Zynyz will be comparable with other drugs in the same class that are currently available.

Drugs such as Merck & Co Inc's (MRK.N) blockbuster Keytruda and Merck KGaA and Pfizer Inc's (PFE.N) Bavencio are approved to treat MCC.

The list price for each dose of Keytruda when it is given every three weeks is $10,683.52, according to its website.

Keytruda is "heavily entrenched" in the indication, brokerage William Blair said, adding that it sees limited commercial opportunity for Zynyz.

The therapy was developed by MacroGenics Inc (MGNX.O) and licensed to Incyte in 2017.

MacroGenics shares were down nearly 5%, while Incyte was down about 1%.

The approval for Zynyz was based on a mid-stage study, which showed the therapy helped decrease the size of tumors or remove all signs of the cancer in patients.

An accelerated approval means companies will still be required to conduct studies to confirm the anticipated clinical benefit.

How bad are the current market jitters?

The wider stockmarket has been relatively unruffled by the trouble within banking

One of the biggest differences between online dating and the old-fashioned sort is the size of the pool. The number of people using dating apps dwarfs offline social networks. So sites offer filters that let users exclude unwanted groups.

The diversity of tastes among giant user bases should make apps a haven for people who struggle with dating offline. And data provided by The League, an American dating site aimed at educated professionals, show that the strictness of users’ filters varies, with many saying they are open to a broad range of traits. However, when users do apply filters, they mostly reflect familiar dating preferences that long predate the internet. And although users with the broadest filters find matches more often, the types of people they end up with mirror the tastes of their heavier-filtering peers.

The League’s data cover 80,000 users across ten cities in January 2023. The site chooses pairs of users who pass each other’s filters and present them as “prospects”. If these users both “like” each other, they can chat. Users see a fixed number of candidates per day. This makes it possible to distinguish explicit dating desires (filters) from implicit ones, revealed by how often users like their prospects.

Filtering choices follow demographic patterns. Women block 70% of potential matches, compared with 55% for men, mostly because they tend to exclude users who are shorter or younger. Whereas women 5’5” (165cm) or shorter eliminate just 17% of people based on height, those 5’10” or taller remove 45%. And women in their 50s filter out 86% of users based on age, compared with 48% for those aged 25-34.

Because users with strict filters weed out most unsuitable people pre-emptively, you might expect them to like many of the remaining candidates. But the data show the opposite. For both sexes, the share of prospects liked by the 10% of users with the tightest filters is 11-13 percentage points lower than by the 10% with the broadest ones. This probably stems from overall pickiness. People looking for a specific type of partner can filter out many weak candidates, but can select based on other criteria, such as looks, only one by one.

Users might find matches more often if their filters better reflected their tastes. One of the best predictors of whether someone will like a prospect is how often other users filter out that prospect’s demographic group. For example, men 5’5” or shorter get through only 7% of other users’ filters, compared with 33% for taller men. Moreover, just 13% of users whose filters allow such short men fancy them when they are presented as prospects—just over half the rate at which taller men are liked.

Such differences are even more striking when it comes to race. Users deploy racial filters sparingly. For example, black women pass through 36% of other users’ filters, compared with 44% for women of other races. This gap is similar to the effect of one inch of height for men. However, just 24% of black women are liked as prospects, versus 37% for non-black women—an impact as great as 11 inches of male height.

This suggests that many users who decline to filter out black women often still pass them over at the prospect stage. Singles might find better matches if they gave a chance to more of the candidates whom they claim to be open to dating.■

Chart source: The League

The American-led invasion of Iraq, which took place 20 years ago this week, set in motion a series of commitments to the Middle East, which have shaped the limits and tempered the expectations of American policy in the region and beyond. The 2003 invasion, a tactical success, gave way to a second act that laid bare how unprepared the United States was to win the peace. It managed the problem, which grew increasingly intractable, through a series of uninformed (or misinformed) decisions, the way it always has: by throwing resources at the problem.

Burdened by this history, and facing the need to reshape foreign policy in the light of challenges posed by China’s increased engagement in the region and the raw aggression of Russia, the Biden administration has a new vision for policy in the Middle East. However, it contains glaring omissions and fails to address key obstacles to its possible success.

In February, the Middle East co-ordinator in the National Security Council, Brett McGurk, gave a speech articulating what he called the “Biden doctrine” for the region. Its main security objectives are deterring Iran from disrupting regional stability, building the military capabilities of regional partners and connecting them through a regional security architecture that delivers the necessary defensive tools to neutralise threats (most of which originate from Iran). Though itself less of a consumer of Gulf oil in recent years, America continues to support its free flow to keep global prices stable and the need to keep open the waterways that are critical for commercial shipping.

But the speech was also notable for what it was missing: any meaningful mention of aims for Iraq and Syria, where there are still 2,500 and 900 American troops respectively. The danger is that everything the United States has done to break the hold of ISIS in Iraq and Syria is reversible, and largely predicated on the continued presence of American troops.

So what will happen when the day comes, as it probably will, when Congress or a future American president, succeeds in ending the American military presence there? Have we enabled the Iraqis to contain any resurgence of ISIS by shifting to more appropriate tools of security assistance and co-operation? Or have we continued to perform the same vestigial tasks of the “Defeat ISIS” mission, that have done little to prepare our partners for a future without us?

These questions do not even begin to address the non-military efforts required to confront the drivers of instability and insurgency that plague the region. For Iraq, the clearest articulation we have of that are the tweets of America’s ambassador to Iraq, Alina Romanowski, who is attempting, almost single-handedly via social media, to share with Iraqis a vision for partnership with the United States to deliver economic reform, better futures for women and youth and to expand access to clean water and electricity. The American embassy in Baghdad has retained only a skeleton staff since the “ordered departure” of 2019.

America’s Syria policy is even more inscrutable. There seems to be no vision that can be divined from public messaging, except that President Bashar al-Assad must remain a pariah, an argument that seems less and less compelling to American partners in the region who are no longer shy about engaging with Syria’s butcher-in-chief.

As for what Mr McGurk did address in his remarks, the administration sees a “regional security architecture” as an elegant solution to deal with American priorities and resources shifting away from the Middle East. There is an opportunity to construct such an architecture that reduces the region’s reliance on American forces. Here, however, the problem is not vision but political will. American military leaders like General Michael Kurilla, head of central command, can convene counterparts in the region. But without greater support in Washington to close the trust gap, fomented by years of public castigations of autocratic leaders and unwillingness to sell weapons, Gulf states do not see an upside.

Though there is justifiable opprobrium in Washington at the human-rights records of these states, they have not sat idly by waiting for American arms sales to resume. They have welcomed new partners and are filling the gap with weapons from American allies and adversaries alike, such as China, Russia, France, and even South Korea and Turkey.

This poses technical problems, since the presence of American adversaries and their systems risks the exposure of sensitive military technology, should Washington make the decision to sell it. It also poses broader problems. These nations no longer see much value in having the United States as an intermediary as they can fill their own needs through bilateral relations–even with Israel–as the UAE did in purchasing the Israeli-Indian co-produced Barak air defence system last year.

Though White House policymakers have sought to tell Middle East partners that the United States is not leaving the region, the partners have already priced in America’s departure and have adjusted their defence policies accordingly. If Washington hopes to retain some relevance to the region, the American government must restore and stabilise its relationships with Saudi Arabia and the United Arab Emirates. The new “Biden doctrine” requires something more costly than American military presence in order to succeed in the Middle East: sustained political and policy commitment from America’s leaders.

Twenty years ago, the military invasion of Iraq led to what has been a large and unceasing American security commitment to the Middle East, and an unquantifiably large opportunity cost to the American people. Now that Washington is seeking to reshape that commitment to the region, it must bring political and policy will to developing a strategy that does not create conditions for regional instability and collapse. That means neither withdrawing precipitously without an effective regional security architecture in place, nor staying indefinitely without relieving the symptoms of dependency, which are evident in the fragility of the Iraqi security apparatus. Success requires dedicated planning and determined execution to build the capacity of our partners, in Iraq and elsewhere, such that the United States can end the cycle of instability that it started with the invasion. After twenty years, the people of Iraq and the broader region, and indeed the people of America, deserve nothing less.■
_______________

Jonathan Lord is director of the Middle East Security programme at the Centre for a New American Security (CNAS). He was previously the Iraq country director in the Office of the Under Secretary of Defence for Policy.

The invasion of Iraq in 2003 and the mismanagement of what followed significantly diminished American power, making our security and prosperity more difficult and costly to sustain. They were mistakes of historic proportions. Yet they were not America’s first significant foreign-policy debacle, nor the first time the United States has been a flawed beacon of its values. In many ways, the failures of the Iraq war mirror some of those of the Vietnam war, and have already had significant repercussions in domestic debates and international attitudes. But, just like Vietnam, they have not meant, and they do not mean, an end to America’s global dominance.

I joined the Bush Administration in 2002 as director for defence strategy on the National Security Council. I was brought in to help deal with the coalition because I had contributed to that work on General Colin Powell’s staff in the 1991 war, but I was not involved in the decision to go to war in 2003. What struck me most was the fear that was prevalent among policymakers after the attacks of September 11th 2001. There was a foreboding that containment of Iraq was rapidly being eroded and there was an anxiety that post-1991 inspections of Iraq had shown Saddam Hussein’s weapons programmes were further advanced than previously thought. The presence of American forces was fuelling radicalisation in Gulf states.

If containment of Iraq could have been sustained another year or two, the Bush administration might have chosen a different course. But in the “unipolar moment” a decade after the Soviet Union’s demise, with few restraints on American power, policymakers made frightened choices. The attacks on America were so recent and, not knowing the dimensions of the terrorist threat, we in the Bush administration made a number of damaging decisions.

The American military failed to anticipate an insurgency and failed to plan for post-war stabilisation. But the weight of failure rests mostly on civilian policymakers in the Pentagon, in Iraq, and in the White House. It was there that the most consequential decisions were taken, about whether to invade and about the size of the invasion and the occupation forces. Policymakers also made the decision to disband the Iraqi military, to set the timeline for coalition-troop withdrawals, to disengage from Iraqi politics and to ignore security concerns of regional countries and the Iraqis themselves.

The invasion increased Iranian state power in the region and sectarian conflicts among Muslims. It distracted resources from the war in Afghanistan, fractured European solidarity and placed an enormous burden on new NATO allies to justify their participation or abstention. On top of all that, it caused the deaths of hundreds of thousands of Iraqis and more than 4,400 Americans.

It also crystallised a change in how America looked to the world. It called into question American willingness to restrain its own power according to its own rules.

What has been unique about American hegemony is the dominant power’s willingness to voluntarily constrain its freedom of action through rules, alliances, and international institutions. Meaningful participation by small and mid-sized powers legitimated outcomes and mobilised voluntary contributions to collective action. Americans justifiably complain about burden-sharing among allies, but no great power has ever had as much voluntary help in upholding the international order as the United States has had. That help has made the order cost-effective for American security and prosperity, and if it wants to continue as the dominant global force, it will have to do a better job abiding by its own rules and restraints.

Having admitted the egregious errors in Iraq that have diminished its power, it is important to say that American power remains formidable. The United States persevered in Iraq, even devised a successful strategy and committed the military forces to carry it out (though it did not do so in the essential non-military elements). Americans proved less casualty-averse than expected. The American economy absorbed more than $800bn in direct costs from the war, and trillions of dollars in total costs, with remarkably little long-term economic effect. The country remains inventive, creative and dynamic. Battered as it often seems, its underlying philosophy remains magnetic to people the world over.

As efforts to assist Ukraine’s fight demonstrate, American power is likely to remain determinant of the world order. The United States has organised 50 contributing countries to help resist Russian aggression and has itself provided $112bn of budgetary and military assistance. The existing order benefits most states and the alternatives are predation by revisionist powers like China and Russia, or passivity of order-respecting states without American leadership and underwriting of common endeavours.

The mistakes of the Iraq war cast long shadows over Americans’ willingness to shape the international order and other countries’ willingness to support those efforts. This is right and understandable. But what are the alternatives? China is increasing its influence in the Middle East, but it is not able to underwrite a different kind of global order that most states want to be part of. Set against the prospect of Chinese and Russian dominance, what America has got right and what it does right are likely to remain the organising principles behind international order for a long time to come. In spite of its errors and flaws, it continues to be the indispensable power. ■
_______________

Kori Schake leads the foreign- and defence-policy team at the American Enterprise Institute in Washington, DC.

UBS Group AG (UBSG.S) will likely shrink Credit Suisse Group's (CSGN.S) $10 billion shipping portfolio that it inherited as part of its emergency takeover on Sunday, the Wall Street Journal reported on Wednesday.

UBS could also try to sell the portfolio, but doing so could prompt owners to move their accounts elsewhere, the WSJ reported, citing people familiar with the matter.

About half of the shipping portfolio involves Greek ship owners that use their deposits in the bank's wealth management arm as collateral to finance new ships, the report added.

"Our wealth management business in Greece is an integral part of our strategy in the Europe region and one we are looking to grow, having recently announced a new market head to support those ambitions," UBS said in an emailed statement to Reuters.

Credit Suisse did not immediately respond to a request for comment.

Swiss authorities announced last week that UBS had agreed to buy its rival Credit Suisse in a merger aimed at containing a crisis of confidence that was spreading through global banking.

RISHI SUNAK was never in danger of reliving Theresa May’s 2019 nightmare of losing parliamentary votes on Brexit deals. Last month, when the prime minister unveiled his “Windsor framework” agreement with the EU to soften the customs border between Great Britain and Northern Ireland necessitated by Boris Johnson’s hard Brexit, his Labour shadow, Sir Keir Starmer, promised his support. Yet the Commons vote on March 22nd was not all plain sailing for Mr Sunak. Though he did not in the end need Labour’s backing for a majority, all the MPs from Northern Ireland’s Democratic Unionist Party (dup) voted against him, as did 22 Conservative hardliners—including his immediate predecessors, Mr Johnson and Liz Truss.

Mr Sunak is plainly guilty of overselling the deal by claiming that it removes any sense of a border in the Irish Sea. His DUP and Tory critics are right to say that, because Northern Ireland is in effect in the EU’s single market for goods, it will (unlike Great Britain) remain subject to EU law and the European Court of Justice. And there is good reason to doubt if the “Stormont brake”, which Mr Sunak says gives the Northern Ireland Assembly a veto over the application of future EU laws—and which was the subject of MPs’ vote—would work in practice. Norway, which has a similar veto, has used it only once and was later forced to give way after EU threats of retaliation.

Yet neither the DUP nor Tory hardliners have offered a practical alternative to the Windsor framework that would avert a hard border with Ireland. Nor can they deny that it improves the present Northern Ireland protocol. It scraps niggling obstacles to trade from Great Britain to Northern Ireland and minimises checks on supermarket goods. Most Northern Irish voters support it. Many believe Mr Sunak’s claim that Northern Ireland will be in the “unbelievably special position” of privileged access to both the UK and the EU markets (a position that, until Brexit, the entire UK enjoyed).

There is no prospect of changes to the Windsor framework. Indeed, the government had arranged for it to take effect even before MPs voted on it. Mr Sunak’s success in pushing it through and improving relations with the EU has strengthened his own political position and weakened those of Mr Johnson and Tory hardliners. But it leaves Northern Ireland’s politics in a mess. The DUP, the biggest unionist party, is sure to maintain its boycott of the province’s power-sharing executive, which can operate only if both it and Sinn Féin, the biggest nationalist party, take part.

It will not be easy for the DUP leader, Sir Jeffrey Donaldson, to back down now. If he does so too easily, he risks losing support to an even harder-line unionist party. Many in the DUP are anyway leery of returning to power-sharing as, for the first time, it would now mean accepting a Sinn Féin first minister. So it seems all but certain that, when the 25th anniversary of the Good Friday Agreement is marked next month with a visit to Belfast by Joe Biden, the American president, the devolved institutions will not be functioning. They are, in effect, collateral damage from Brexit.■

CENTRAL planners have long shaped Hegang, a city in China’s far north. Once, coal and other minerals made Hegang a pillar of socialist industry. When the richest seams were declared exhausted, just over a decade ago, the central government closed many mines and put its faith in green infrastructure. Shanty-towns of soot-blackened miners’ huts were demolished and replaced with brightly painted apartment blocks, marching to the horizon beside new city parks. A high-speed rail line opened last December. There is proud talk of a graphite mine that will supply factories making batteries for new-energy vehicles. Alas for the technocrats, they could not prevent more than one in six locals leaving Hegang after 2010, fleeing low salaries, limited job prospects (especially for graduates) and long, dark, brutal winters.

Recently, that combination of a home-building drive and a shrinking population has propelled Hegang to an unforeseen distinction. It is by some measures China’s cheapest city at prefecture-level or above. In 2019 Hegang earned online notoriety after young outsiders made viral videos and blog posts boasting of buying sizeable apartments there for as little as 46,000 yuan ($6,700). The claim is supported by more formal surveys. Hegang’s second-hand housing stock sells for 2,152 yuan per square metre on average, making property 40 times cheaper than in Shenzhen, a high-tech southern metropolis.

This backwater of 790,000 people near the Russian border has now become an online byword for a place where strivers—as well as have-nots and misfits—can turn modest savings into a home. True, many give up and leave within months, often as winter temperatures plunge to -20°C. Others visit only briefly to decorate apartments bought online, before returning to lives in a factory dormitory as migrant workers in a giant eastern city. But even that remote form of ownership is “a form of emotional comfort” for migrants, who may spend years in Shanghai or Guangzhou but have no hope of buying homes there, says Liang Yunpeng, a Hegang estate agent. He sells perhaps 80 cheap flats a year to outsiders, typically on the upper floors of old buildings without lifts. His customers often have less than 30,000 yuan to spend.

It would be rash to predict Hegang’s revival by incomers. Several successful new residents supplement local jobs by creating short online videos and posts that play on the novelty of their move to China’s far north, earning millions of views for films about the cold or the cheapness of eating out. Only a limited number can become famous online for living in Hegang.

Still, this small city is a good place to observe a large trend. China faces a cost-of-living crisis. Between 1998 and 2021 urban Chinese homes became four times less affordable, as judged by the ratio of average housing prices to median disposable incomes. Today a flat in Beijing measuring 100 square metres costs, on average, 6.3m yuan, or about a million dollars. That is 34 times the average annual salary in China’s capital. Unattainable housing is especially painful because property is seen as a safe, government-backed form of savings, and because a man without his own apartment will often struggle to find a wife. It also exposes deep inequities in modern society. Some involve yawning income inequality. But others reflect encrusted privilege from the socialist era, notably after urban housing was privatised in the 1990s and sold off to state-employed workers and officials at steep discounts.

Visiting Hegang, Chaguan meets the owner of a small burger bar, surnamed Hou. He is locally born, and returned from Beijing in 2020 when the covid-19 pandemic halted his work as a guide taking Chinese tourists to Russia. Such holidays are not cheap: a family trip to Moscow might cost 30,000 yuan. Still, many of his clients were seemingly ordinary pensioners. The explanation is that long-time Beijingers might own two or three apartments, bought cheaply years ago. Now even a small flat can generate 60,000 yuan a year in rental income. In contrast, Mr Hou has noticed more Hegang friends heading home, after realising that—as migrant outsiders to a big city—they will never have enough capital to buy a home or start a business. He is glad to hear more customers or delivery-scooter riders with non-local accents, too. For one thing, such newcomers prop up Hegang housing prices.

Some locals resent Chinese bloggers who call the city a haven for those yearning to “lie flat”, or drop out and abandon material ambitions. Wang Dakai, who spent ten years in big cities before returning to open a barber’s shop, worries that Hegang is being called lazy. “None of us is lying flat, everyone is hustling,” he says. Proving his point, as his price for answering questions he asks to film an online video pretending to cut his British visitor’s hair to post on his social-media channels.

Individual dreams in a bastion of old collectivism

Some fresh starts are life-changing. Buying and renovating a flat for 70,000 yuan last summer allowed a 25-year-old vlogger who uses the name “Hua Hua” to make a home for herself and her ten-year-old sister. Each month she sends money to pay for her mentally impaired mother’s care at home in Jiangxi province, 3,000km to the south. She supports herself by selling pancakes and bean jelly from a street cart, housesitting cats, working as an online customer-service assistant and writing. Hegang is quiet and friendly, and has some good schools from its days as a mining centre, she says. Also, she likes snow. On a recent morning she was joined in her tiny, cat-filled home by a newly arrived friend, a divorced single mother. The friend has noticed that many arrivals have strained relations with families, as she does.

No central planner set out to make Hegang a city where young women can enjoy rare autonomy, without a husband or relatives to control them. This cheap ex-mining town is best understood as an accidental safety-valve. Its startling fame reveals that Chinese society is a system under terrible pressure.■

The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing further increases in borrowing costs amid recent turmoil in financial markets spurred by the collapse of two U.S. banks.

The move set the U.S. central bank's benchmark overnight interest rate in the 4.75%-5.00% range, with updated projections showing 10 of 18 Fed policymakers still expect rates to rise another quarter of a percentage point by the end of this year, the same endpoint seen in the December projections.

But in a key shift driven by the sudden failures this month of Silicon Valley Bank (SVB) and Signature Bank, the Fed's latest policy statement no longer says that "ongoing increases" in rates will likely be appropriate. Instead, the policy-setting Federal Open Market Committee said only that "some additional policy firming may be appropriate," leaving open the chance that one more quarter-of-a-percentage-point rate increase would represent at least an initial stopping point for the rate hikes. STORY: read more

MARKET REACTION:

STOCKS: The S&P 500 (.SPX) turned 0.29% higher

BONDS: Benchmark 10-year note yields fell to 3.5223% after the decision; The 2-year note yield fell to 4.033%

FOREX: The euro extended a gain and was last up 0.71% at $1.0844

COMMENTS:

KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO:

“I think the Fed did take the path of least resistance here, hiking but also providing a relatively dovish outlook on rates over the year ahead. That essentially gives markets what they were looking for.”

“I think the clear, big sentence in the statement itself, that was sort of interesting here was, ‘Recent developments are likely to result in tighter credit conditions for households and businesses, and to weigh on economic activity, hiring and inflation.’ And so what this suggests is that to some extent, the turmoil in the banking sector that has unfolded in recent weeks is actually helping the Fed achieve its objectives of loosening slack in the in the US economy and cooling aggregate demand.”

TIM GHRISKEY, SENIOR PORTFOLIO STRATEGIST, INGALLS & SNYDER, NEW YORK

“The Fed has been spooked by Silicon Valley Bank and other banking turmoil. They certainly point to that as a potential depressant on inflation, perhaps helping them do their job without having to raise rates as aggressively.”

“This positive reaction from the market is what you'd expect with a softened tone from the Fed and allowing the banking system setbacks to do their job for them in reducing inflation.”

PAUL NOLTE, SENIOR WEALTH ADVISOR AND MARKET STRATEGIST, MURPHY & SYLVEST WEALTH MANAGEMENT, CHICAGO

“They still are talking about hiking rates. They are not talking about being done here, but the markets are taking it as a pretty dovish statement.”

“They acknowledge the issues with the banking sector, but said, alright they are pretty healthy, not to worry, which is what I would have expected.”

“They haven’t backed away from hiking rates, but the equity markets, and the bond market too, are taking it as a huge positive.”

ASHIS SHAH, CHIEF INVESTMENT OFFICER, GOLDMAN SACHS’ PUBLIC INVESTING BUSINESS, NEW YORK

"Despite the Fed pressing ahead with a 25bps rate hike today, we see considerable uncertainty in the path ahead and would downplay the significance of updated economic and dot plot projections in such a fast-moving environment.

"Going forward, we expect the Fed’s data-dependent framework to be informed by what happens in both the economy and banking sector. It is easier to separate monetary policy from financial stability objectives during liquidity crises but concerns over capital constraints can fast change the economic outlook and blur the divide. Rate cuts have become more conceivable, though not yet our base case given the inflation picture.

"It is difficult to pinpoint where and when further vulnerabilities may unfold, but we think areas that benefited the most from low rates and low inflation may be the most exposed. Big picture, as markets adapt to a higher rate regime, we continue to favor high quality fixed income.

On January 12th Oxfordshire County Council, in England, gave the go-ahead for a new building near the village of Culham. The applicant, General Fusion, is a Canadian firm, and the edifice will house its Fusion Demonstration Program, a seven-tenths-scale prototype of a commercial nuclear-fusion reactor. The firm picked Culham because it is the site of JET, the Joint European Torus, an experimental fusion reactor opened in 1983 by a consortium of governments. That means there is plenty of local talent to be recruited.

General Fusion is not alone. On February 10th Tokamak Energy, a British firm, announced plans for a quarter-scale prototype, the ST80, also at Culham. And in 2024 they will be joined there by Machine 4, a pre-commercial demonstrator from another British outfit, First Light Fusion.

Meanwhile, across the ocean in Massachusetts, Commonwealth Fusion Systems is already building, in Devens, a town west of Boston, a half-scale prototype called SPARC. On the other side of America, in Everett, Washington, Helion Energy is likewise constructing a prototype called Polaris. And in Foothill Ranch, a suburb of Los Angeles, TAE Technologies is similarly working on a machine it calls Copernicus.

These six firms, and 36 others identified by the Fusion Industries Association (FIA), a trade body for this incipient sector, are hoping to ride the green-energy wave to a carbon-free future. They think they can succeed, where others failed, in taking fusion from the lab to the grid—and do so with machines far smaller and cheaper than the latest intergovernmental behemoth, ITER, now being built in the south of France at a cost estimated by America’s energy department to be $65bn. In some cases that optimism is based on the use of technologies and materials not available in the past; in others, on simpler designs.

Many of those on the FIA’s rapidly growing list are tiddlers. But General Fusion, Tokamak, Commonwealth, Helion and TAE have all had investments in excess of $250m. TAE, indeed, has received $1.2bn and Commonwealth $2bn. First Light is getting by on about $100m. But it uses a simpler approach than the others (“fewer screws”, as Bart Markus, its chairman, puts it), so has less immediate need for cash.

All these firms have similar timetables. They are, or shortly will be, building what they hope are penultimate prototypes. Using these they plan, during the mid-to-late 2020s, to iron out remaining kinks in their processes. The machines after that, all agree, will be proper, if experimental, power stations—mostly rated between 200MW and 400MW—able to supply electricity to the grid. For most firms the aspiration is to have these ready in the early 2030s.

Un peu d’histoire

The idea of harnessing the process that powers the sun goes back almost as far as the discovery, in the 1920s and 1930s, of what that process is—namely the fusion of protons, the nuclei of hydrogen atoms, to form helium nuclei (⁴He), also known as alpha particles. This reaction yields something less than the sum of its parts, for an alpha particle is lighter than four free protons. But the missing mass has not disappeared; it has merely been transformed. As per Einstein’s equation, E=mc², it has been converted into energy, in the form of heat.

This sounded technologically promising. But it was soon apparent that doing it the way the sun does is a non-starter.

Persuading nuclei to fuse requires heat, pressure or both. The pressure reduces the space between the nuclei, encouraging them to meet. The heat keeps them travelling fast enough that when they do meet, they can overcome their mutual electrostatic repulsion, known as the Coulomb barrier, and thus allow a phenomenon called the strong nuclear force, which works only at short range, to take over. The strong force holds protons and neutrons together to form nuclei, so once the Coulomb barrier is breached, a new and larger nucleus quickly forms.

The temperature at which solar fusion occurs, though high (15.5m°C), is well within engineers’ reach. Experimental reactors can manage 100m°C and there are hopes to go higher still. But the pressure (250bn atmospheres) eludes them. Moreover, solar fusion’s raw material is recalcitrant. The first step on the journey to helium—fusing two individual protons together to form a heavy isotope of hydrogen called deuterium (a proton and a neutron)—is reckoned to take, on average, 9bn years.

What engineers propose is thus a simulacrum of the solar reaction. The usual approach—that taken by General Fusion, Tokamak Energy, Commonwealth Fusion and First Light, as well as government projects like JET and ITER—is to start with deuterium and fuse it with a yet-heavier (and radioactive) form of hydrogen called tritium (a proton and two neutrons) to form ⁴He and a neutron. (Fusing deuterium nuclei directly, though sometimes done on test runs, is only a thousandth as efficient.)

Ignition sequence start

The power released emerges as kinetic energy of the reaction products, with 80% ending up in the neutron. The proposal is to capture this as heat by intercepting the neutrons in an absorptive blanket and then use it to raise steam to generate electricity. Reactors will also, the idea goes, be able to make the tritium they need (for tritium does not occur naturally) by including in the blanket some ⁶Li, an isotope of lithium which reacts with neutrons to generate tritium and an alpha particle. Deuterium is not a problem. One in every 3,200 water molecules contains it.

Not everyone, though, is taking the deuterium-tritium route. Helion and TAE are instead proposing versions of what is known as aneutronic fusion.

Helion’s suggestion is to start with ³He (two protons and a neutron), a light isotope of helium which is an intermediate stage in the solar reaction. But instead of fusing two of these, as happens in the sun (yielding ⁴He and two protons), it fuses them one at a time with deuterium nuclei, to produce ⁴He and a proton. The ³He would be replenished by tweaking conditions to promote a side reaction that makes it from two deuteriums.

TAE proposes something yet more intriguing. Its fuels are boron (five protons and six neutrons) and ordinary hydrogen, both plentiful. When these fuse, the result breaks into three alpha particles. Indeed, TAE originally stood for Tri-Alpha Energy. The problem is that to work satisfactorily a boron-proton fusion reactor will have to generate not a mere 100m°C but 1bn°C.

Even with deuterium-tritium fusion there are many ways to encourage nuclear get-togethers. The aim is to create conditions that match what is known as the Lawson criterion, after John Lawson, who promulgated it in the 1950s. He realised that achieving power generation means juggling temperature, density and the time for which the reaction can be prolonged. This trinity gives rise to a value called the triple product which, if high enough, results in “ignition”, in which the reaction generates enough energy to sustain itself.

The most common reactor design, a tokamak, majors on temperature. It was invented in Russia in 1958, and pushed aside two previous approaches, Z-pinching and stellarators, because it appeared to offer better control over the deuterium-tritium plasma used as fuel. (A plasma is a gas-like fluid in which atomic nuclei and electrons are separated.) Its reaction chamber is a hollow torus which contains the plasma. This torus has a set of toroidal electromagnetic coils wrapped around it, paired poloidal coils above and below it, and a solenoid running through the middle (see panel 1).

A plasma’s particles being electrically charged, a tokamak’s magnets can, in combination, control their behaviour—containing and heating them to the point at which the nuclei will fuse. The plasma must, though, be kept away from the reaction vessel’s wall. If it makes contact it will cool instantly and fusion will cease. Stellarators, though also toroidal, required a more complex (and hard to control) arrangement of magnets. Z-pinching used an electric current through the plasma to generate a self-constraining magnetic field.

A conventional tokamak’s torus resembles a doughnut, but Tokamak Energy’s design (the interior of the current version is pictured, plasma-filled, above) looks like a cored apple. This was calculated, in the 1980s, to be more efficient than a doughnut. The calculation was done by Alan Sykes, who then worked on JET and who is one of the company’s founders.

The efficiency and compactness of Dr Sykes’s spherical layout have been greatly enhanced by using high-temperature superconductor tapes for the coils’ windings. (“High temperature” means they operate below the boiling point of nitrogen, -196°C, rather than that of liquid helium, -269°C). These offer no resistance to the passage of electricity, and thus consume little power. Such tapes are now available commercially from several suppliers.

Commonwealth Fusion also uses high-temperature superconductors in its magnets. And, though its tokamak will be a conventional doughnut rather than a cored apple, it, too, will be compact.

At least as important as the magnets is the other improvement both firms have brought to tokamaks: plasma control. Tokamak Energy’s system, for example, is run from a control room that would not disgrace the set of a James Bond film. The software involved is able to track the plasma’s behaviour so rapidly that it can tweak conditions every 100 microseconds, keeping it away from the reactor walls. Come the day a commercial version is built, it will thus be able to operate continuously.

The pressure’s on

General Fusion, by contrast, plans to match the Lawson criteria using pressure, as well as temperature, in an approach it calls magnetised target fusion. As Michel Laberge, its boss, explains, the fuel is still a plasma, but the reaction vessel’s lining is a rotating cylinder of liquid metal—lithium in the prototype, and a mix of lithium and lead in the putative commercial model.

Once the fuel has been injected into the cavity inside this cylinder, pneumatic pistons will push the metal inward (see panel 2), collapsing the cavity into a small sphere. That compresses and heats the plasma to the point where it starts to fuse. If this system can achieve ignition, the heat generated will be absorbed by the liquid lithium—whence it can be extracted to raise steam. Also, some of the neutrons will convert ⁶Li in the lining into tritium.

General Fusion, too, relies on sophisticated software to control the pistons and so shape the plasma appropriately. But Dr Laberge believes that doing without electromagnets has simplified the design and removed potential points of failure.

TAE and Helion, meanwhile, both use so-called field-reversed configurations (see panel 3) to confine their plasma. Their reaction chambers resemble hollow barbells, but with a third “weight” in the middle. The ends generate spinning plasma toroids that are then fired at each other by magnetic fields. Their collision triggers fusion. Again, this would not be possible without sophisticated control systems.

Both Helion and TAE plan to generate electricity directly, rather than raising steam to run a generator. Helion will pluck it from the interaction between the magnetic field of the merged plasma toroids and the external field. How TAE intends to do it is undisclosed, though it says several approaches are being considered.

Several members of the FIA list’s “tail” of 36 are pushing the edges of the technological envelope in other ways. Some are exploring yet further fuel cycles—reacting deuterium nuclei to generate power, rather than just to test apparatus, for instance, or fusing lithium with protons. Others are sticking to the deuterium-tritium route, but examining different types of reactor.

Zap Energy, in Seattle, for example, is using enhanced plasma control to revive Z-pinching. And several firms, including Princeton Stellarators and Type One Energy Group, both in America, and Renaissance Fusion, in France, are dusting off stellarators—again in the belief that modern computing can deal with their quirks.

But the most immediate competition for tokamaks, field-reversed configurations and General Fusion’s hydraulic design is an approach called inertial fusion. In this the fuel starts off in a small capsule and the Coulomb barrier is overcome by applying an external shock.

At the moment, the leader of the inertial-fusion pack is First Light. Its engineers apply the shock in the form of a projectile fired by electromagnetic acceleration (see panel 4). The target is a fuel capsule inside a cube-shaped amplifier. The amplifier boosts the impact’s shock wave (to 80km per second, it is hoped, in the case of Machine 4) and refracts it so that it converges on the capsule simultaneously from all directions. This will implode the fuel, achieving an ignition-level triple-product.

First Light’s approach is, however, unusual. Most other proponents of inertial fusion plan to deliver the shock with lasers. These include Focused Energy, of Austin, Texas; Marvel Fusion, of Munich; and Xcimer Energy, of Redwood City, California. They are all following a path pioneered by the National Ignition Facility (NIF), an American government project to study the physics of atomic weapons.

Green grow my dollars-o

In December 2022 the NIF caused a flutter by announcing it had reached ignition. But the energy released was less than 1% of that expended, meaning it was nowhere near another sine qua non of commercial fusion, Q>1. Q is the ratio of the energy coming out of a machine to that going in. Different versions of Q have different definitions of “out” and “in”. But the one most pertinent to commerce is “plug to plug”—the electricity drawn grid to run the whole caboodle versus the energy delivered to back the grid. Focused, Marvel and Xcimer hope to match that definition of Q>1.

It all, then, sounds very bubbly and exciting. But bubbly—or, rather, a bubble—is precisely what some critics worry it is.

First, many technological challenges remain. Dr Markus’s observation about the number of screws is shrewd. In particular, his firm (and also General Fusion) have dealt with the need for complex magnetic plasma-control systems by avoiding them.

Finance is also a consideration. Fusion, like other areas of technology, has benefited from the recent period of cheap money. The end of that may garrotte much of the tail. But the pack leaders have stocked up with cash while the going was good. This should help them to hang on until the moneymen and women can judge them on results, rather than aspirations.

Nor should the arrival date of the early 2030s be seen as set in stone. This is an industry with a record of moving deadlines, and a British government project to build a spherical tokamak called STEP has a more cautious target to be ready in 2040.

Moreover, even if a practical machine does emerge, it will have to find its niche. The story told by the companies is of supplying “baseline” power in support of intermittent sources such as solar and wind—and doing so in a way that avoids the widespread public fear of an otherwise-obvious alternative, nuclear fission. That might work, but it will also have to be cheaper than other alternatives, such as grid-scale energy-storage systems.

For fusion’s boosters, though, there is at least one good reason for hope. This is the sheer variety of approaches. It would take only one of these to come good for the field to be transformed from chimera to reality. And if that happened it could itself end up transforming the energy landscape. ■

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More sharp moves in asset prices could expose weaknesses in parts of Britain's financial system, the Bank of England warned on Wednesday, with confidence in international banks shaken recently by some high-profile failures.

In a letter to lawmakers, the BoE said the strains affecting global banks could still hurt Britain's economy, through higher borrowing costs for consumers and businesses.

The Swiss government-backed takeover of Credit Suisse (CSGN.S) by UBS (UBSG.S) in recent days has helped soothe concerns over European financial stability.

But the wipeout of some Credit Suisse bondholders has sent shockwaves through bank debt markets, while the speed with which trouble spread from regional U.S. banks to humble a big systemic bank in Europe has rattled markets.

"Should there be further volatility and/or sharp moves in asset prices, there are risks it could trigger the crystallisation of previously identified vulnerabilities in market-based finance, amplifying any tightening in credit conditions," BoE Governor Andrew Bailey said in a letter to parliament's Treasury Committee.

Bailey added that the Financial Policy Committee, which oversees the stability of the financial system, was "continuing to closely monitor these events, and the extent to which they may impact the wider UK financial system".

Market-based finance refers to corporate capital markets and non-bank financial firms like pension funds, whose financial structure exacerbated a sharp sell-off in British government bonds last September, triggered by the economic agenda of then- prime minister Liz Truss.

Bailey reiterated on Wednesday that Britain's banking system is well-capitalised and remains "safe and sound".

Despite recent wobbles in the global banking system, financial markets now think it is almost certain that the BoE will raise interest rates again on Thursday, following a stronger-than-expected inflation reading for February.

Pacific Western Bank (PACW.O) has raised $1.4 billion from investment firm Atlas SP Partners, the lender said on Wednesday, as the crisis-hit sector scrambles to limit the damage from the recent collapse of two mid-sized lenders.

Shares of the bank were down about 10% in afternoon trading, even as the lender tried to allay investor worries by saying it had more than $11.4 billion in cash as of March 20.

Los Angeles-based PacWest also said it had explored the idea of raising new capital, but decided against the move due to a rout in bank stocks.

"Any time that you know a bank talks about having considered a capital raise, especially in this environment where there's so much skittishness from the markets, it's bound to have a negative impact of the stock," said Gary Tenner, analyst at brokerage D.A. Davidson & Co.

Major banks and private equity firms are balking at offering capital infusions to regional lenders amid concerns from potential buyers and investors about looming losses in their assets, five sources told Reuters on Sunday.

PacWest's private fundraise potentially gives other banks a novel workaround to raising money, likely opening the door on more private financing deals among troubled lenders looking for fresh capital.

The investment portfolios where regional banks have parked the deposits of their clients comprise mainly of Treasuries and other securities, such as mortgage bonds.

They are worth less than what the banks value them on their books because of a steep rise in interest rates. Some of the loan books of these banks are also underwater, due to high rates and concerns about an economic slowdown.

Still, the private financing strategy remains largely untested.

Tenner told Reuters it will be premature to think that PacWest's route of raising money is going to be the blueprint for other banks.

Reuters first reported last week that PacWest was in talks with investment firms including Atlas SP Partners for ways to boost its liquidity.

The bank said deposits insured by the Federal Deposit Insurance Corp, including accounts eligible for pass-through insurance, exceeded 65% of its total deposits, as of March 20.

Total deposits at the bank fell 20% to $27.1 billion from $33.9 billion as of Dec. 31.

Regional banks, whose stocks have been battered since the collapse of two mid-sized U.S. lenders this month, have tried to assure customers their deposits are secure after the recent bank runs whipsawed the global financial ecosystem.

"We will continue to see flows away from regionals and into systemically important banks that are too big to fail," said Thomas Hayes, chairman and managing member of Great Hill Capital.

IN WINTER THE snow outside Suomussalmi, a town 600km (370 miles) north of Helsinki, lies a metre deep. Step off the road and you sink to your thighs, as the Soviet army’s 44th Rifle Division found when it invaded Finland during the Winter war of 1939-40. Once its 14,000 men, 530 trucks and 44 tanks had passed the border village of Raate, the Finns blew up its lead and rear vehicles. For weeks, while the trapped column froze and starved, Finnish ski troops in white camouflage glided through the woods slicing it to bits. The division’s commander struggled back to Soviet lines, where commissars had him shot.

Most Soviet soldiers were Russian, but those on the Raate road were Ukrainian. Some 82 years later, Ukrainians fighting for their own country would trap and smash a Russian army on a motorway north of Kyiv using much the same tactics the Finns had. Finland reacted with a shock of recognition. It abandoned its policy of military neutrality, first forced on it by the Soviets, and applied to join NATO. Its neutral neighbour Sweden did the same.

Since then both countries’ applications have been held up by Turkey. The Turks’ main problem is with Sweden, which it accuses of harbouring various enemies. In January Turkey suggested it might admit Finland alone, an idea the Finns at first resisted out of solidarity. Yet they have gradually come to accept the notion. On March 17th Sauli Niinisto, Finland’s president, visited Ankara. There Recep Tayyip Erdogan, his Turkish counterpart, announced he would start the process of ratification.

Mr Erdogan has left Sweden hanging, demanding the deportation of more than 100 people he calls “terrorists”, mainly Kurdish emigrés. The Turkish president faces an election on May 14th, and bashing the Swedes is useful campaign fodder—the more so since a far-right Danish politician burnt a copy of the Koran in front of Turkey’s embassy in Stockholm in January. Letting in Finland curries favour with America, which has been delaying selling Turkey F-16 fighter jets. Mr Erdogan also needs goodwill from NATO members, which he hopes will help Turkey rebuild after an earthquake in February.

For Finland, joining NATO makes some things simpler. Under neutrality Finnish leaders “had to be mini-Kissingers”, pragmatically balancing their Western orientation and the eastern threat, says Ilkka Haavisto of EVA, a think-tank in Helsinki. Now deepening their Western alignment is itself pragmatic. NATO’s guarantee of mutual defence will help Finland protect its 1,300km-long border with Russia.

Many of the Russian forces based in the region have been sent to Ukraine, says General Sami Nurmi of the Finnish army, but he expects them to rebuild over three to five years. The war has also made it much harder for Russian propagandists to influence public opinion. Where once they could exploit the Finns’ traditional neutrality, “that changed almost overnight” after the war started, says Jessikka Aro, author of a book on Russian internet trolls.

There are some political wrinkles. Finland will hold a general election on April 2nd. Sanna Marin, the prime minister, is popular, but her Social Democratic party trails the centre-right National Coalition in the polls. Applying to NATO together with Sweden “made it easier for my party”, says Antti Rinne, a former Social Democratic prime minister. Going it alone has raised hackles, though mostly in Sweden, where some of its people feel abandoned.

The biggest change is the return to the days of a hostile eastern border. In Suomussalmi, relations had recently been friendly. Finns crossed into Russia to buy cheap petrol; Russians bought holiday houses and took summer jobs picking berries on farms. Now that is over. Most Finns do not dislike Russians as individuals: the Raate road has monuments to the Ukrainian and Russian soldiers who died there. The Russian state is another matter.

“Everybody in Suomussalmi has a Plan B for if Russia comes,” says Jenni Mikkonen, who manages a local pub and grew up playing in the trenches left by the war. Ville Hiltunen, one of her patrons, roams the woods with a metal detector digging up war relics, a popular pastime in the area. In a compartment behind his garage he keeps a miniature museum of vintage gear: Soviet helmets; a Finnish submachine gun. An old metal plate bears words scratched in Russian: “No food. Dying.” “People here know what it is to live near Russia,” says Mr Hiltunen. “It’s nothing new.” ■

By Steve Scherer and David Ljunggren

OTTAWA, March 22 (Reuters) - The Bank of Canada was concerned about inflation sticking above its 2% target and agreed there might be a need to tighten monetary policy further when officials decided to leave rates on hold this month.

On March 8, the bank became the first major central bank to pause its tightening campaign, leaving the key overnight interest rate on hold at 4.50%, as expected. It vowed to hold off on further hikes as long as inflation continued to ease in line with its forecasts.

In January the bank said it expected inflation to ease to 3% at around mid-year and to slow to 2% next year. But during the deliberations ahead of the announcement, the bank noted that services inflation "is proving sticky", according to minutes from the policy-setting meeting released on Wednesday.

The five-member governing council remains "concerned about the risk that inflation could get stuck materially above the 2% target," the minutes said.

But all five members backed keeping rates on hold to measure the effects of previous hikes because they agreed "the economy is slowing, and inflation is coming down".

Over the past year, the bank raised rates eight times in a row by a total of 425 basis points to tame inflation, which peaked at an annualized rate of 8.1% last year and slowed to 5.2% in February.

"After increasing the policy rate at each of the last eight decisions, Governing Council saw the pause as an opportunity to learn whether interest rates had increased enough to return inflation to the 2% target," the minutes said.

The council operates on a consensus basis and does not vote on policy decisions.

The situation has changed markedly since March 8. Bank failures in the United States and Europe show that pushing up rates too high could fuel further financial instability, and underpin a continued pause on rates in Canada.

On March 8, money markets were betting that the Bank of Canada's next move would be another rate increase by September. Now they are betting there will be a cut by July.

(Reporting by Steve Scherer, editing by David Ljunggren)

((Reuters Ottawa bureau, +1 647 480 7921; david.ljunggren@tr.com))

When Lesedi was growing up in Johannesburg, South Africa’s commercial capital, her family was so poor that she used a cloth filled with sand as a makeshift sanitary product. That changed when, at the age of 14 (which is below the legal age of consent), she began having sex with a man nearly 15 years older who gave her rides to school and bought her toiletries. The boyfriends who followed in her teenage years and early twenties were increasingly generous. “If I were to date you, you had to make sure that you’re working first,” says Lesedi (whose name we have changed). “Love alone can’t give me food.” One married man paid for her apartment and outfits, and gave her money to support her family. She got everything she wanted, says Lesedi, until she found out that she was infected with HIV.

Relationships between adolescent girls or young women and older men are a big cause of new HIV infections globally. Eastern and southern Africa have about a tenth of the world’s population, yet accounted for nearly half of the world’s 1.5m new HIV cases in 2021. And young women (aged 15-24) are disproportionately affected, with infection rates more than three times higher than in their male peers (see chart). Like Lesedi, many of these girls and women have become infected while dating a succession of older men. A few years later many pass it on when they meet someone closer to their own age with whom they wish to settle down. “This is when HIV is transmitted to this young man, who then becomes the older man,“ says Linda-Gail Bekker of the Desmond Tutu HIV Centre at the University of Cape Town. “So you have the vicious HIV cycle.”

Breaking this cycle is one of the biggest challenges in public health. Efforts to change the behaviour of young women and older men are seldom successful. Instead, the solution may be pharmacological, in the form of pre-exposure prophylactic (PrEP) drugs that healthy people take to avoid contracting HIV. New and highly effective PrEP regimens for women are becoming available or are in late-stage development. If they become widely used by girls and women having sex with older men, Africa’s HIV epidemic will take a sharp turn down.

Explaining the age gap

Relationships with sugar daddies (which wonks prefer to call “transactional sexual relationships”) are different from sex work. Some women talk about being romanced by older men and getting emotional support from them that they might not get from men their own age. Girls in South Africa often start having sex at the age of 14 or 15 when, puberty-wise, they are more sexually mature than their male peers, says Dr Bekker. Some start relationships with slightly older men as part of discovering their sexuality, flattered that they are so attractive to them. Research in South Africa has found that the man is usually five to eight years older, though there are also cases like Lesedi’s, with a man a generation older.

Attitudes to men in such relationships are encapsulated in what many young Africans call their older male partners: “blessers”. Some women boast on social media about their gifts (using #blessed). Having a blesser provides social status as well as trendy clothes, expensive smartphones and other goodies that their parents cannot afford to buy for them, says Joyce Wamoyi of the National Institute for Medical Research in Tanzania. Such gifts are common among university students. In the poorer countryside, by contrast, men provide money for necessities such as food and clothing.

Younger men struggle to compete for the attention of young women because they tend to earn less money than older men. Yet their male elders are much more likely to have HIV, simply because they have been having sex for longer and with more partners in societies with high rates of HIV. Men in their 20s—often the first partners of adolescent girls—are less likely to know they are infected and, therefore, to take antiretroviral drugs (ARVs), which would make them less likely to pass the virus on through sex. A study conducted in 2016 in KwaZulu-Natal, a province in South Africa with a high prevalence of HIV, found that the sexual partners of women younger than 25 were, on average, 8.7 years older. The partners of women who were 25-40 were only a year older. Clusters of related infections identified through HIV genotyping led the researchers to conclude that younger women got infected by older men and. Then as they got older, they infected men of their own age.

Various programmes aiming to change this have mostly failed. Charities have tried giving poor adolescent girls small amounts of cash to meet their basic needs. But once they have food on the table as a result of such handouts, says Dr Wamoyi, they aspire to have more, such as nicer clothes; and once they have that, they want more expensive things such as a smartphone. A cash grant programme may give them the equivalent of $10 or $20 every three months. “An older man can give you $20 on the spot,” she says.

A more promising idea is to prevent girls and young women from becoming infected, ideally using methods which do not require them to persuade a man to wear a condom (which is difficult). Among these are three PrEP methods that have become available in recent years: a vaginal ring, a daily pill and an injection every second month. Convincing women at risk of HIV to use them can, however, be a challenge.

The vaginal ring, an insertable silicone device that releases an ARV drug and must be replaced every month, can reduce the risk of HIV infection by as much as 50%. But “it’s not going to be everybody’s cup of tea,” admits Dr Bekker.

The daily PrEP pill, which contains a combination of ARV drugs, has been available in Africa for several years. But it has been tricky to pinpoint how effective it is because even in clinical trials too few women used it consistently. Some studies estimate that, if used properly, these pills can reduce the risk of HIV infection by as much as 90%. But it is hard to take the medication discreetly at work or school and tricky to hide from a parent or a boyfriend. Women worry about stigma if people think they are taking the pills because they have HIV. And many people, particularly youngsters, are not very good at remembering to take medication every day, says Dr Bekker. “They have enthusiasm, they get started, but then the persistence falls off quite rapidly,” she says. Some also choose to take their pills only around the time they have sex. A study of 427 girls and young women in Africa published in 2019 found that a year after starting this type of prophylaxis only 9% had levels of the drug in their blood that suggested they were still taking it regularly.

The most promising option is an injectable form of PrEP. This contains a long-acting form of cabotegravir, which stops an important stage in the replication of HIV in host cells. It is delivered as an injection, initially once a month and then every two months, and was included in the World Health Organisation guidelines on HIV prevention last year. In clinical trials with women in Africa, it was nearly 90% more effective than oral PrEP. Regulators in Zimbabwe and South Africa approved it late last year; other African countries are expected to follow. Injectable contraceptives are already the most popular type of birth control in Africa, so women in the region may take to injectable PrEP more easily than the vaginal ring or the pills. And more convenient versions of it are in clinical trials. Lenocaprivir, which is injected every six months, is in late-stage trials. Unlike cabotegravir, which is an intramuscular jab, lenocaprivir is a subcutaneous injection. This means it can be administered by community health workers, rather than nurses, or even self-administered. Its timing will also align with the most popular injectable contraceptives, which are taken every three months. Women going to a family-planning clinic could get their HIV shot, too, “and nobody would ever know about it,” says Nina Russell of the Bill and Melinda Gates Foundation, a charity.

The impact could be large. Modelling published earlier this year in the Lancet found that the introduction of injectable cabotegravir in sub-Saharan African could almost double uptake of PrEP to 46% of those who need it, from about 28% if it were not introduced. The authors reckon that this would avert 29% of new HIV infections over 20 years and bring cases within a whisker of the HIV-elimination threshold of one new infection per 1,000 people.

Much will depend on the cost of injectable PrEP. The Lancet study estimates that cabotegravir would be cost-effective at about $60 for a year’s supply, which is about the same as the cost of oral PrEP. Viiv, the company that makes the drug, says it will offer it at a non-profit price to public programmes in sub-Saharan Africa until a generic version is available, though it has yet to reveal the price (it charges $22,000 for it in America). It has signed a deal with the Medicines Patent Pool, a UN-backed organisation that promotes the production of generic versions of patented drugs for poor countries. But setting up production in a low-cost factory, perhaps in India or Africa, will take time. Meanwhile, African countries will need aid organisations to help pay for the new drug.

It may be a while before long-acting PrEP drugs are widely available in Africa. But they are coming. And with them, eventually, the hope of ending the HIV epidemic on the continent. ■

When the Bank of Canada became the first major global central bank this month to pause raising interest rates after its most aggressive tightening campaign in history, indebted consumers heaved a sigh of relief.

But with the benchmark rate still at a 15-year high of 4.5% and borrowing costs expected to stay higher for longer, Canadians are in no rush to open their purse strings. Many are planning to save instead, a habit they acquired during the pandemic.

Consumers' reluctance to spend could challenge an economy facing headwinds from a record pace of interest rate hikes as retail spending accounts for about 5% of Canada's Gross Domestic Product. Analysts say slower consumer spending could be a trend that plays out in other countries as well as central banks worldwide prepare to end their aggressive rate hikes to tame inflation.

Iqhlaas Ahmad, a food and beverage worker in Canada's financial capital Toronto, said most of his money goes to basic amenities like food, clothing and shelter.

As an immigrant, he has clear priorities. "Our mentality over here (in Canada) is definitely saving up in order to survive," he said.

An Angus Reid study released on Tuesday found that 47% of Canadians say they are worse off financially than in 2022, with 38% reporting feeling the same and only 15% feeling better.

The Royal Bank of Canada's consumer spending tracker released on March 9 showed discretionary spending "held up" in February, driven by air travel demand. But restaurant spending edged lower while rising grocery inflation sapped spending power.

Canadians are sitting on about C$350 billion ($255 billion) in excess savings generated during the pandemic, RBC economist Carrie Freestone estimated. While it is unclear what part of that has been deployed, that kitty will help Canada to avoid a deep recession, she noted.

"Savings are definitely a good thing. It means people are in a better position coming out of the pandemic than they were before, at least in terms of savings."

Sun Lee, who owns a women's clothing boutique Aria in Toronto, noticed fewer and thriftier customers entering the store since the pandemic. Even her own budget, she said, first goes toward food and shelter.

Douglas Porter, chief economist at BMO Capital Markets, said he has seen people shifting money from checking or savings deposits into longer term instruments like a guaranteed investment certificate (GIC) since the central bank held off on hiking rates at its March 8 meeting.

"They're trying to lock in these interest rates," Porter said.

For many Canadians, owning a house is a top priority, but high mortgage rates make it difficult to buy one even as benchmark prices have fallen 11.2% from a May peak according to Teranet–National Bank National Composite House Price data.

Jesse Kleine, a British Columbia-based realtor, said huge interest payments are discouraging people from buying a home.

While BOC's rate-hike pause may not be enough to re-energize the housing market, he expects the central bank's decision will bring clarity on how high rates are going to rise, Porter said.

"(But) I don't think it'll necessarily change saving behavior," he added.

($1 = 1.3726 Canadian dollars)

Bank of England policymakers will not have looked at Wednesday's inflation data with the same enthusiasm as sterling traders, who took advantage of a shock jump to push the pound up, confident that a rate hike this week is now a done deal.

British consumer price inflation (CPI) rose to 10.4% in February from January's 10.1%, above all economists' forecasts in a Reuters poll and almost back to where it was in December.

Markets now see a near 100% chance of the BoE raising rates to 4.25% from 4.0% on Thursday, firming from a roughly 50/50 chance earlier this week of policymakers doing nothing in light of the crisis of confidence that has rocked the global banking sector.

The rally in sterling, last up 0.45% at $1.227 , and a 25 basis point jump in two-year government bond yields were further signs that investors now expect an imminent hike.

While a fall in energy prices is positive in the longer run, prices elsewhere have risen. The problem, said Ben Nicholl, a fund manager at Royal London Asset Management, is "inflation in all the wrong places".

Core inflation, which strips out food and energy, rose by 6.2% in February, far above the median forecast of an easing to 5.7% in the Reuters poll.

"Core CPI missed by 0.5% - that's one of the biggest, if not the biggest misses on CPI in the recent series of inflation data. So it's a shocker for the Bank of England, particularly given they've been so dovish in their recent messaging," Nicholl said.

The cost of food and non-alcoholic drinks rose 18.0% - the most in more than 45 years, while the 12.1% annual rise in inflation at restaurants and hotels was the biggest since 1991, according to Japanese bank Nomura.

Britain has had the highest inflation among Group of Seven nations with persistent price pressures affecting longer-lasting components such as services and wage growth.

"The UK will be obliged to continue to hike rates," Francois Savary, chief investment officer at Prime Partners, said.

"They are in the worst situation you can find among developed economies. The UK has a significant inflation issue and growth has not returned to pre-pandemic levels," he said.

Britain's two-year gilt yield shot up to 3.5%, set for its biggest one-day jump since October when Britain's financial markets were reeling from former Prime Minister Liz Truss' "mini-budget".

That reflects investors' belief that rates still have room to rise, even if the UK's independent watchdog last week forecast inflation will drop towards 3% by year-end.

Rate futures indicate the Bank Rate peaking at 4.5% or 4.75% in mid-2023 but little chance of it hitting 5% as had been the case earlier this month.

UK mid-cap stocks (.FTMC), closely linked to the health of the underlying economy, were among the poorest performers in the European equity market on Wednesday, dropping 0.4% while the regional STOXX 600 rose 0.3% (.STOXX).

At above 10%, the UK's rate of inflation is more than five times the BoE's target rate of 2%.

City Index markets strategist Fiona Cincotta said rate-hike speculation was supportive for the pound, which was also 0.2% higher against the euro at 87.98 pence.

"The market is going to be second-guessing (the BoE) right now - it's difficult to assume there's just one more rate hike left in the tank," she said.

RLAM's Nicholl noted recent data, such as employment, business activity and manufacturing, had shown strength, and consumer spending has held up.

Derek Halpenny, EMEA head of research for global markets at Nomura said January and February's combined annual inflation rate of 9.67% makes for a "mildly supportive" outlook for the pound.

"Prior to the banking sector turmoil, we had assumed the BoE would hike by one further 25bps to 4.25% as an insurance. After today’s data we think that is now likely, but still assume 4.25% will be the peak given the sharp declines in year-on-year CPI remain likely in Q2 and beyond," he said.

Shares of First Republic Bank (FRC.N) were volatile in morning trading on Wednesday as the regional lender struggled to raise capital amid worries that it may need to downsize or seek government support.

Major banks and private equity firms have so far balked at infusing capital on fear of losses on the bank's loan book and investment portfolio following a rapid rise in interest rates.

The bank's shares flitted between gains and losses and were last up 3.6% at 10:31 a.m. ET. Shares have lost roughly 87% of their value so far this month.

On Tuesday, Reuters reported First Republic is examining how it can downsize and sell parts of its business, including some of its loan book, in a bid to raise cash and cut costs.

"First Republic is one that's on its way to getting solved, but it is in the eye of the storm," said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest.

Earlier this month, concerns about First Republic's health had prompted top power brokers including U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and JPMorgan (JPM.N) CEO Jamie Dimon to put together an unprecedented $30 billion rescue deal.

U.S. authorities have sought to reassure Americans that the overall banking system remains sound and regulators are committed to ensuring that another regional lender does not collapse in the aftermath of Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O).

"First Republic has its own unique situation. There are other banks that are in negotiations right now to take over their deposits or inject more money into the bank so it's hard to say right now that it (the banking crisis) is over," Nolte added.

A conservative Republican and a progressive Democrat in the U.S. Senate are introducing legislation on Wednesday to replace the Federal Reserve's internal watchdog with one appointed by the president, aiming to tighten bank supervision following the failures of Silicon Valley Bank and Signature Bank.

Republican Rick Scott and Democrat Elizabeth Warren blamed the collapse of the two banks on regulatory failures at the U.S. central bank, which has operated up to now with an internal inspector general who reports to the Fed board.

"Our legislation fixes that by establishing a presidentially-appointed, Senate-confirmed inspector general at the Fed, like every other major government agency," Scott said in a joint release with Warren.

Warren said this month's banking upheavals "have underscored the urgent need for a truly independent inspector general to hold Fed officials accountable for any lapses or wrongdoing."

The Federal Reserve was not immediately available for comment.

The legislation was due to be introduced later on Wednesday. According to a four-page legislative text, the measure would replace the Fed's inspector general with an independent IG who would oversee the Federal Reserve and the Consumer Financial Protection Bureau. The CFPB is an independent bureau within the central bank that is responsible for consumer protection within the financial sector.

Warren played a key role in setting up the CFPB under Democratic President Barack Obama following the 2007-2008 financial crisis. The U.S. Supreme Court last month agreed to hear a case challenging the CFPB's funding structure, which some conservatives argue violates the U.S. Constitution,

The cooperation between Scott and Warren, who usually inhabit opposite poles of the political spectrum, could be the start of a new bipartisan push on banking.

Warren is a leading voice on financial matters. She sits on both the Senate Banking Committee and the Senate Finance Committee, and chairs subcommittees of both panels.

Scott, a former Florida governor, is a hardline conservative who has positioned himself as a leading fiscal hawk.

The show of bipartisanship poses a stark contrast with the partisan standoff between Republicans and Democratic President Joe Biden over the nation's $31.4 trillion debt ceiling, which has raised concerns in the financial markets about a prolonged debate that could damage the U.S. economy.

Both Republicans and Democrats have pledged tighter oversight of banking regulators following the collapses of Silicon Valley Bank and Signature Bank, which were followed by billions of dollars in losses for financial stocks.

"We may end up in one of these strange-bedfellows situations," said Chris Brown, a banking lobbyist and former staffer on the House of Representatives' Financial Services Committee, which oversees the banking industry.

"I do think there's overarching concern about what happened here," he said.

House Financial Services Committee Chairman Patrick McHenry, a North Carolina Republican, and the panel's top Democrat, Maxine Waters, have jointly scheduled a March 29 hearing on the banking system that will present testimony from officials with the Fed and the Federal Deposit Insurance Corporation (FDIC).

The fall of Credit Suisse (CSGN.S) has dealt a serious blow to Switzerland's credentials as the world's leading wealth management centre, experts warn, calling into question its reputation for stability, regulation and corporate governance.

Battered by years of scandals and losses, Credit Suisse had been fighting a crisis of confidence for months, before its demise was sealed in just a matter of days last week when Swiss authorities brokered a takeover of the bank by larger rival UBS.

UBS itself needed to be rescued by the government in 2008 after a disastrous foray into U.S. mortgage securities.

The Credit Suisse collapse and its aftermath "is going to be very damaging," said Arturo Bris, Professor of Finance at the International Institute for Management Development (IMD) in Lausanne, adding it could benefit rival financial centres.

Switzerland manages $2.6 trillion in international assets according to a 2021 Deloitte study, making it the world's largest financial centre ahead of Britain and the United States. But it faces competition from other centres including Luxembourg and in particular Singapore, which has grown rapidly in recent years.

"The bankers in Singapore are going to be uncorking the champagne bottles," Bris told Reuters.

Switzerland's credibility as a stable, predictable country had been upended by moves like the decision to wipe out the holdings of Credit Suisse bondholders, he said.

Under the takeover deal, holders of Credit Suisse AT1 bonds will get nothing, while shareholders, who usually rank below bondholders in compensation terms, will receive $3.23 billion.

While Credit Suisse's AT1 prospectus made clear that hybrid (AT1) holders would not recover any value, few anticipated the bank's demise.

The Swiss Bankers Association has attempted to put a brave face on the crisis, presenting the rescue engineered by the government, central bank and regulator as sign of strength.

"The Swiss financial sector was able to address a major issue of a significant player," SBA Chairman and former UBS CEO Marcel Rohner told reporters on Tuesday.

"In that sense I also see a prosperous future for the financial centre because we have hundreds of very well capitalised banks and very successful wealth management and asset management banks."

Still, the number of banks has fallen, down to 239 in 2021 from 356 in 2002. Staff numbers since 2011 have slipped to 91,000 from 108,000.

Others were more skeptical about the future, highlighting a reluctance to confront mistakes at Credit Suisse or take responsibility for the aftermath.

"There are a lot of open questions: the use of emergency law overriding the views of shareholders or the treatment of bond holders," said Stefan Legge, head of tax and trade policy at the University of St. Gallen's IFF Institute for Financial Studies.

"Maybe some people are a bit delusional – and really believe they are doing a great job."

Switzerland invoked emergency legislation to allow a public liquidity backstop (PLB) which will provide up to 100 billion Swiss francs in liquidity to Credit Suisse as the PLB was not yet part of Swiss law.

But perhaps most controversially, the emergency law allowed the takeover to go ahead without shareholder approval.

Legge said the collapse should serve as a wake-up call, and could see new laws to improve corporate governance introduced.

Switzerland has few mechanisms for holding top bankers individually responsible for mismanagement, unlike centres such as Britain where senior managers can face criminal sanctions.

Unions and politicians have also reacted angrily to the rescue, which could leave the taxpayer having to cover up to 9 billion francs in losses.

Switzerland's outsized banking sector has been under pressure for years following a decline in banking secrecy as other countries sought to clamp down on tax evasion by citizens.

The financial sector's contribution to the Swiss economy has also slipped, falling to 8.9% of Swiss GDP in 2022 from 9.9% in 2002 as industries like pharmaceuticals became more important in a country with the third highest GDP per capita in the world, according to IMF data.

BAK Economics, a Swiss research institute, said the fallout from the debacle would be contained within the banking sector. It estimated up to 12,000 Swiss jobs being lost, although the impact on the broader economy would be limited.

Jan-Egbert Sturm director of the KOF Swiss Economic Institute at ETH Zurich, a university, predicted the economic impact of Credit Suisse's demise would amount to a loss of around 0.05% of GDP per year.

Switzerland's long banking tradition and structural advantages meant the country would remain heavily involved in banking in future, he said, with investors still choosing it for its stability and the strength of its Swiss franc currency.

Still competition was getting fiercer, and the recent events would eventually see Singapore overtake Switzerland, warned IMD's Bris.

"I think it's only a matter of time."

Billionaire Richard Branson's cash-strapped Virgin Orbit Holdings Inc (VORB.O) is nearing a deal for a $200-million investment from Texas-based venture capital investor Matthew Brown via a private share placement, according to a term sheet seen by Reuters.

The space startup did not comment on the likely deal, but said on Wednesday it would resume operations on March 23 and prepare for its next mission by recalling some of its employees, sending its shares up 60% in premarket trading.

Matthew Brown Companies did not immediately respond to a request for comment.

A deal would be a boost of confidence for the satellite launch company that has been grappling with dwindling cash and mounting losses in recent quarters in a highly competitive market.

Virgin Orbit's market capitalization slumped to a record low of $150 million on Tuesday from more than $3 billion two years ago when it went public through a blank-check deal.

In January, its rocket LauncherOne failed a mission to deploy nine small satellites into lower Earth orbit due to an anomaly during its flight through space.

The company, which received about $35 million of capital injections from Branson's Virgin Investments in recent months, said last week it was exploring options and was in talks for fresh funding.

Virgin Orbit and Matthew Brown are aiming to close the deal on Friday, according to the term sheet, which is not binding and remains subject to final agreement.

Virgin Orbit's board agreed to move forward with the deal at a meeting held on Tuesday, according to a person with direct knowledge of the matter.

Under the deal, Matthew Brown will be entitled to convert his $200 million investment in Virgin Orbit's preferred shares into common shares at the volume weighted average price in the 30 days before the deal is signed.

The converted shares will possess the same voting rights as the common stock. Virgin Investments is currently the largest shareholder with a stake of nearly 75%.

The company booked a loss of nearly $44 million for the third quarter and had cash reserves of about $71, a sharp drop from $122 million as of June-end. It has yet to announce a date for its fourth-quarter results.

Virgin Orbit's statement on workforce confirmed an earlier Reuters report that said it plans to recall a small team from furlough for rocket upgrades. The company said more employees will be back to work on March 27.

Carvana Co (CVNA.N) said on Wednesday it expects a smaller core loss in the current quarter due to a raft of cost-cut measures it implemented amid falling used-car sales, sending its shares up nearly 28% before the bell.

Carvana expects first-quarter core loss between $50 million and $100 million, down from a core loss of $348 million a year earlier.

The used-car retailer, known for its automated car vending machines, allows users to buy cars online and offers home deliveries, which made it popular during the COVID-19 pandemic when people were confined to their homes.

However, demand for used cars has cooled in recent months, as people cut back on discretionary expenses amid recession worries, heaping pain on the industry already struggling with inventory purchased at higher prices.

Separately, Carvana announced it was offering creditors an option to exchange unsecured notes for those backed by collateral, in a move that will see repayment on some obligations pushed to 2028 from as early as 2025.

The offer would be for a principal amount of up to $1 billion in notes, with a condition that at least $500 million existing notes be validly tendered.

President Tayyip Erdogan faces the biggest test of his 20-year rule in May elections that will decide not only who leads Turkey but how it is governed, where its economy is headed and what role it may play to ease conflict in Ukraine and the Middle East.

The presidential and parliamentary votes are set for May 14, three months after powerful earthquakes struck Turkey's southeast, killing tens of thousands and leaving millions homeless.

The opposition picked as its presidential candidate Kemal Kilicdaroglu, leader of the Republican People's Party (CHP), and formed an alliance aiming to appeal to voters from the left and right, as well those with Islamist roots.

The opposition promises to reverse many of the policies of Erdogan, who has championed religious piety, military-backed diplomacy and low interest rates.

WHAT'S AT STAKE IN THIS ELECTION FOR TURKEY ...

The most powerful leader since Mustafa Kemal Ataturk founded the modern Turkish republic a century ago, Erdogan and his Islamist-based AK Party have shifted Turkey away from Ataturk's secular blueprint.

Erdogan has also centralised power around an executive presidency, based in a 1,000-room palace on the edge of Ankara, which sets policy on Turkey's economic, security, domestic and international affairs.

Critics say his government has muzzled dissent, eroded rights and brought the judicial system under its sway, a charge denied by officials who say it has protected citizens in the face of unique security threats including a 2016 coup attempt.

Economists say Erdogan's calls for low interest rates sent inflation soaring to a 24-year high of 85% last year, and the lira slumping to one tenth of its value against the dollar over the last decade.

Under Erdogan, Turkey has flexed military power in the Middle East and beyond, launching four incursions into Syria, waging an offensive against Kurdish militants inside Iraq and sending military support to Libya and Azerbaijan.

Turkey also saw a series of diplomatic clashes with regional powers Saudi Arabia, Egypt, the United Arab Emirates and Israel, as well as a stand-off with Greece and Cyprus over eastern Mediterranean maritime boundaries, until it changed tack two years ago and sought rapprochement with some of its rivals.

Erdogan's purchase of Russian air defences triggered U.S. arms industry sanctions against Ankara, while his closeness to Russian President Vladimir Putin led critics to question Turkey's commitment to the NATO Western defence alliance. Ankara's objections to NATO membership applications from Sweden and Finland have also raised tensions.

However, Turkey also brokered a deal for Ukrainian wheat exports, underlining the potential role Erdogan has staked in efforts to end the Ukraine war. It is not clear that a successor would enjoy the same profile he has created on the world stage, a point he is likely to stress in the election campaign.

The two main opposition parties, the secularist Republican People's Party (CHP) and centre-right nationalist IYI Party, have allied themselves with four smaller parties under a platform that would reverse many of Erdogan's signature policies.

They have pledged to restore independence to the central bank and reverse Erdogan's unorthodox economic policies. They would also dismantle his executive presidency in favour of the previous parliamentary system, and send back Syrian refugees.

Erdogan supported failed efforts to topple Syrian President Bashar al-Assad, while hosting at least 3.6 million Syrian refugees who have become increasingly unwelcome amid economic hardship in Turkey.

The opposition has echoed Erdogan's plans to return some refugees to Syria, but neither has set out how that could safely take place.

Erdogan formally announced the election decision on March 10, kicking off campaigning for what polls suggest will be a tight race.

While the first of Erdogan's two decades in power was marked by surging economic growth, the last 10 years have seen a decline in prosperity which has hit his popularity with voters.

Initial polls since the quakes had suggested that Erdogan was able to largely retain his support despite the disaster. But the emergence of a united opposition, even after a delay in picking its candidate, could prove a bigger challenge for him, analysts say.

How the opposition will garner support among the Kurdish voters, accounting for 15% of the electorate, remains key. The co-leader of the pro-Kurdish Peoples' Democratic Party (HDP) said they may back Kilicdaroglu after a "clear and open" talk.

(This story has been refiled to indicate Erdogan has formally announced election date)

At the turn of the year, bitcoin was in the grip of a bleak midwinter, down and out after a 2022 defined by tumbling crypto prices, bankruptcies and corporate scandals.

Less than three months later, bitcoin's got its mojo back. With gains of more than 70% so far this year, it has outpaced other major assets, and was on Wednesday trading near its highest in nine months.

The original and biggest cryptocurrency has been here before, its 15-year history peppered with dramatic price increases and equally vertiginous drops. Fuelling the gains: interest rates.

Markets expect that central bank hikes to the cost of credit are nearing their peak, and such a scenario is set to buoy risk-on assets such as bitcoin, six investors and analysts from crypto and traditional finance told Reuters.

"The macro narrative is the number one," said Noelle Acheson, an economist who has tracked the crypto sector for seven years. "Bitcoin is not just a risk asset, it is arguably the most sensitive to monetary liquidity out of all of the risk assets."

Other factors are at play, too, from turmoil in the banking sector to enduring hopes - still unfulfilled - that bitcoin can achieve wide usage as a form of payment.

Bitcoin closed its best week in four years on Sunday, and has gained 45% in just 12 days.

As the collapse of U.S. lenders Silicon Valley Bank and Signature Bank helped to triggered the takeover on Sunday of 167-year-old Credit Suisse by rival UBS, claims that bitcoin is an asset immune to risks in traditional finance have gained traction.

"It's rather narrow-minded to say that bitcoin is going to succeed because a bank failed," said Usman Ahmad, CEO of Zodia Markets, the crypto exchange of the venture arm of Standard Chartered (STAN.L) and Hong Kong crypto firm BC Technology Group.

"But confidence is almost a critical factor - confidence in the banking system has been damaged."

Driving bitcoin's gains have been its core user base of retail investors, analysts said. Institutional investors such as pension funds, until now wary of the unstable and mostly unregulated bitcoin, are likely to remain sceptical of a long-lasting renaissance for the cryptocurrency, the interviews showed.

"Bitcoin's recent bull run looks to be mainly supported by individual investors – ranging from retail to whales – as we have seen evidence of institutions exiting during this rally," said Zhong Yang Chan, head of research at crypto data firm CoinGecko.

Indeed, bitcoin investment products, favoured by larger investors, saw outflows of $113 million last week, according to digital asset manager CoinShares, which ascribed the moves to a scramble for liquidity during chaos in the banking sector.

In the past, too, dramatic price swings for bitcoin have been closely tied to shifts in monetary policy globally.

As stimulus measures flooded the global financial system during the COVID-19 pandemic, stay-at-home investors fuelled a six-fold rally for bitcoin between September 2020 and April 2021.

Those moves, allied with emerging interest in crypto from larger investors and companies, led crypto backers to vow that its chances of a bruising crash historically seen after bitcoin rallies were lower.

Yet as signs of runaway inflation late in 2021 forced central banks and governments to curb stimulus packages, bitcoin slumped by more than half from its record high of $69,000 in just 75 days as rates began to rise.

In 2022, bitcoin plummeted over 65% as higher rates triggered the fall of a major crypto token, precipitating the closure of major hedge funds and crypto lenders. It was further bruised by regulatory headaches and the dramatic fall of the FTX exchange.

The disastrous year was another reminder of bitcoin's vulnerability to external shocks, despite backers' claims it is a safe haven asset in times of political and economic stress.

To be sure, some investors say developments to bitcoin's intrinsic characteristics are now capable of supporting its price. Richard Galvin of crypto fund Digital Asset Capital Management, for instance, cited software upgrades that have enabled a new breed of non-fungible tokens on bitcoin.

Still, for investors in traditional assets, doubts remain.

"I don't know if old-school currency people are reassessing it," said Stephen Gallo, European head of FX strategy at BMO Capital Markets. "We are still struggling with bitcoin on the definition of a currency."

The banking turmoil sparked by the collapse of Silicon Valley Bank is not yet over, and a significant number of banks will fail within two years, the CEO of hedge fund Man Group (EMG.L) told a Bloomberg conference in London on Wednesday.

Asked whether the crisis in the sector was over, Man Group's Luke Ellis told delegates he did not think so.

Market chaos forced the emergency rescue of Credit Suisse by Swiss rival UBS over the weekend in a move that has brought some calm to markets.

"I think we will have significantly more banks that don't exist in 12-24 months," Ellis said, adding that he thought smaller and regional banks in the United States and challenger banks in Britain could be at risk.

Ellis said the growth in social media had accelerated how quickly concerns about banks circulate. "Things happen at a much faster speed. Whether that's a crisis or it's good news," he said.

He added that he was not personally an investor in U.S. regional banks.

Many hedge funds have made money from the banking sector volatility in recent days by betting against banks.

A spokesperson for the Bank of England, which supervises the health and stability of Britain's financial system, said "the UK banking system is well capitalised and funded, and remains safe and sound".

Central banks globally have responded to the turmoil with coordinated measures to ensure the flow of cash between banks around the world.

"I think policymakers have done enough to ringfence these really unique issues," Seema Shah, chief global strategist at Principal Asset Management, told delegates in a separate debate at the event.

Alexander Chartres, investment director at asset manager Ruffer LLP, said that he expects there to be a recession in the United States and that he would therefore invest across different asset classes.

• Fed statement due at 1800 GMT
• A hawkish Fed could see gold decline -analyst
• Swiss gold exports to China, India rebound

Gold prices ticked higher but traded in a relatively tight range on Wednesday as investors hunkered down for the U.S. Federal Reserve's interest rate decision.

Spot gold was up 0.1% at $1,941.10 per ounce as of 1136 GMT, after dropping 2% in the previous session. U.S. gold futures edged 0.2% higher to $1,944.10.

The U.S. central bank's rate decision is expected at 1800 GMT, followed by a press conference by Fed Chair Jerome Powell. The Fed is mostly expected to increase rates by 25 basis points, according to the CME FedWatch tool.

Driving some of the small gains in gold was a softer dollar , which makes bullion cheaper for those holding other currencies.

"A 25 bps hike would be neutral for gold," said Quantitative Commodity Research analyst Peter Fertig.

"(But) if the Fed decides to keeps rates unchanged, it should be positive for gold as it will reduce the opportunity cost of holding it and the U.S. dollar will also weaken," Fertig added.

Bullion recently hit an one-year high and breached the key $2,000 level in a strong rally driven by safe-haven demand after the collapse of U.S.-based Silicon Valley Bank and share fall at Credit Suisse.

However, prices retreated after the rescue of Credit Suisse drove a tentative rebound in appetite for riskier assets.

A hawkish Fed could see gold decline, with $1,900 being the next big test below, followed by $1,860, said Craig Erlam, senior market analyst at OANDA, in a note.

British inflation unexpectedly rose to 10.4% in February, according to official data which is likely to prompt the Bank of England to raise interest rates on Thursday.

On the physical front, Switzerland's exports of gold to China and India rebounded in February, Swiss customs data showed on Tuesday.

Spot silver gained 0.1% to $22.39 per ounce, while platinum rose 0.8% to $975.99 and palladium was up 1.1% at $1,372.90.

OPEC+ is likely to stick to its deal on output cuts of 2 million barrels per day (bpd) until the end of the year, even after a banking crisis sent crude prices plunging, three delegates from the producer group told Reuters.

Oil prices hit 15-month lows on Monday in response to the banking crisis that followed the collapse of two U.S. lenders and resulted in Credit Suisse being rescued by Switzerland's biggest bank UBS (UBSG.S).

Brent crude was trading around $75 a barrel on Wednesday morning.

Last October OPEC+, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, agreed steep output cuts of 2 million bpd from November until the end of 2023 despite major consumers calling for increases to production.

That decision helped to push Brent close to $100 a barrel, but prices have come under pressure since then as rising interest rates to combat high inflation threaten to stymie oil demand growth.

Falling oil prices are a problem for most of the group's members because their economies rely heavily on oil revenue.

Russian Deputy Prime Minister Alexander Novak on Tuesday said that Moscow will continue with a 500,000 bpd production cut it announced last month, lasting until the end of June.

"This is only a unilateral cut of Russia," one of the delegates said.

"No changes for the group until the end of year," he added.

Another delegate added that no further cuts were planned by the group.

A third delegate said the recent slump in oil prices was related to speculation in the financial market, not market fundamentals.

The heads of top oil traders and hedge funds that spoke at an industry event this week said that they expected oil prices to strengthen by the end of the year as continued easing of COVID-19 restrictions in China drive up demand in the world's biggest oil importer.

Pierre Andurand, founder of hedge fund Andurand Capital, was the most bullish and forecast a potential Brent oil price of $140 a barrel by the end of the year.

In its most recent monthly report, OPEC upgraded its forecast for Chinese oil demand growth this year but maintained its projection for global demand growth at 2.32 million bpd.

OPEC+ is due to hold a virtual meeting of its ministerial committee, which includes Russia and Saudi Arabia, on April 3 before a full ministerial meeting in Vienna on June 4.

Oil prices edged lower on Wednesday following fresh indications of weak demand, and as the market awaited a crucial interest rate decision by the U.S. Federal Reserve.

Brent crude futures , which have risen by almost 3% this week, were down 30 cents, or 0.40%, at $75.02 a barrel at 1026 GMT. U.S. West Texas Intermediate (WTI) crude futures were down 29 cents, or 0.42%, at $69.38.

Data from the American Petroleum Institute on Tuesday called demand into question after it showed an unexpected rise in U.S. crude inventories last week, sources said, defying analyst estimates of a decline.

Official data from the Energy Information Administration, the statistical arm of the U.S. Department of Energy, is due at 10:30 a.m. (1430 GMT) on Wednesday.

Further price weakness followed an unexpected rise in UK inflation in February, raising fears of further interest rate hikes a day before the Bank of England announces its latest interest rate decision.

The market will be seeking direction from the U.S. Fed's Federal Open Market Committee (FOMC), which announces its decision on interest rates at 1800 GMT.

The expected rate hike of 25 basis points is a turnaround from the steep 50 basis point rate rise anticipated before the recent banking turmoil, triggered by the collapse of two regional banks.

"It would be a big shock if the Fed reverted back to larger rate hikes now considering everything that's happened this past couple of weeks," said Craig Erlam, senior market analyst at OANDA.

Brent prices hit their lowest last week since 2021 on concern that the rout in bank shares could trigger a global recession and cut fuel demand.

An emergency rescue of Credit Suisse (CSGN.S) over the weekend helped revive oil prices.

Meme stock GameStop Corp (GME.N) jumped nearly 40% in premarket trading on Wednesday after the video game retailer posted its first profitable quarter in two years, igniting a surge in other stocks popular among retail traders.

GameStop posted an adjusted profit of 16 cents per share for the fourth quarter, compared to a loss of 47 cents a year ago, helped by a tight lid on costs including job cuts.

The Grapevine, Texas-based company, in which billionaire investor Ryan Cohen serves as chairman and majority shareholder, recorded a 16% decline in costs during the quarter.

GameStop was the most-touted stock on investor-focused social media site stocktwits.com.

"The early signs on costs are encouraging, and expect profitability again in Q4 2023, but want to see the leverage in the non-holiday quarters before modeling full-year positive EBITDA," said Jefferies analyst Andrew Uerkwitz.

"Revenue headwinds in the core business remain."

Fourth-quarter revenue fell 1.2% to $2.23 billion.

Other popular stocks among retail traders also rose, with AMC Entertainment Holdings Inc (AMC.N) gaining 10%, while Bed Bath & Beyond (BBBY.O) added 11%.

The high interest rate regime of the past year has roiled stock markets, with speculative areas of the market such as meme stocks taking a severe blow. GameStop shares slid 25% in the past 12 months, compared to a 10.3% slide in the S&P 500 (.SPX).

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A look at the day ahead in U.S. and global markets from Mike Dolan

A semblance of banking calm has allowed markets to pick a lane and bet one last U.S. interest rate hike later on Thursday - but you'd be forgiven for doubting any suggestion of market conviction right now.

Two weeks of U.S. and European banking stress and failures leaves the Federal Reserve and other major central banks in the unenviable position of choosing between stabilising financial systems and fighting still historically high inflation.

The level of uncertainty - particularly during a public blackout period for Fed officials - has seen wild swings in market interest rates each day for a fortnight and the most volatile month for Treasury bonds (.MOVE) since the banking collapse of 15 years ago.

While many think bank turmoil in itself will ultimately hasten a credit crunch that does the Fed's job for it, shocking news of a re-acceleration of UK inflation last month was a reminder to central banks that disinflation is not yet baked in.

While the British inflation surprise reflects some of the price stickiness already evident in February U.S. numbers released earlier in the month, and may potentially be overtaken by recent banking events, it hugely complicates the Bank of England's policy decision on Thursday at least.

Without another landmine in the banking world over the past 24 hours, and following the first consecutive daily gains in the S&P500 (.SPX) in almost three weeks on Tuesday, money markets have now focussed squarely on the looming policy decisions.

Futures markets now see a 85% chance the Fed will lift rates by a quarter point later - but no further rate rise is fully priced for the cycle and at least one rate cut by yearend still remains in the futures strip.

Two year U.S. Treasury yields clung on to 4% - but have now recorded intraday swings of more than 25 basis points every trading day since March 10, with a peak-to-trough move on March 15 alone exceeding 70bp.

In truth, the Fed meeting may be far messier than that implies, with Fed chair Powell's press briefing having to square pressing financial stability questions and recent emergency Fed lending against ongoing quantitative tightening and another rate rise. On top of that, the latest quarterly economic projections from Fed policymakers may reveal a big dispersion of views.

U.S. stock futures and euro bourses were flat first thing, with banking news focussed on Treasury Secretary Janet Yellen's latest assurances overnight and further moves to shore up First Republic Bank (FRC.N) - which is still in the crosshairs.

Beyond the Fed, the dire UK inflation reading seems to have solidified expectations of another BoE rate rise on Thursday and a further move later in the year. The prospects of a hike this week were seen as only 50-50 just 24 hours ago.

If nothing else, it underlines in red ink just how all central banks are totally dependent now on incoming data evidence on what's happening in the real economy.

On that score, Thursday's news of the first annual drop in U.S. house prices in 11 years won't go unnoticed in Washington either.

With the U.S. dollar lower across the board ahead of the Fed meeting, sterling hit its highest level since early February.

Elsewhere, the prospect of central banks hesitating in further credit tightening seems to have excited the frothier parts of the financial markets, with Bitcoin back above $28,000 this week for the first time since June and even 'meme stocks' like GameStop (GME.N) surging 40% before the bell after the videogame retailer reported a surprise profit.

In tech, Alphabet (GOOGL.O) Google on Tuesday began the public release of its chatbot Bard, seeking users and feedback to gain ground on Microsoft Corp (MSFT.O) in a fast-moving race on artificial intelligence technology.

Key developments that may provide direction to U.S. markets later on Wednesday:

* U.S. Federal Reserve policy decision, press conference and new economic projections

* European Central Bank President Christine Lagarde, ECB chief economist Philip Lane and ECB board member Fabio Panetta speak in Frankfurt; Bundesbank chief Joachim Nagel speaks in London; Bank of Finland Governor Olli Rehn speaks in Brussels

* Bank of Canada policy meeting minutes

• Graphic: World FX rates
• Graphic: Global asset performance

World stocks were cautiously higher on Wednesday as hopes that a banking crisis would be averted were tempered by uncertainty before a Federal Reserve meeting that sees the central bank caught between taming inflation and maintaining stability.

Data showing British inflation unexpectedly rose to 10.4% in February boosted expectations for a quarter point rate hike at Thursday's Bank of England meeting, lifting sterling.

While London's FTSE stock index dipped (.FTSE), European stock markets more broadly edged higher (.STOXX) while Asia-Pacific shares outside Japan (.MIAPJ0000PUS) added 1.3%.

Japan's Nikkei (.N225) climbed 2.0% led by a rebound in beaten-down bank stocks.

Efforts by regulators and policymakers globally to stem banking sector turmoil have helped steam a rout in equity markets but the mood remain fragile. S&P 500 futures and Nasdaq futures edged down.

The spotlight was firmly on the Fed, which concludes a two-day meeting later on Wednesday.

It is expected to raise interest rates by a quarter of a percentage point, a decision that will land amid a brewing political storm over the U.S. central bank's oversight of collapsed Silicon Valley Bank and with the financial world hanging on the words of Fed chief Jerome Powell.

"So far the banking issues are more idiosyncratic than systemic, and a system breakdown has become far less likely in the wake of the extraordinary deposit support announced by the Fed in the wake of the Silicon Valley Bank collapse," said Padhraic Garvey, regional head of research, Americas at ING.

"Plus, delivery of a 25 bps hike still means the Fed is tightening, there is likely at least another hike to come."

An added complication is whether the Fed temporarily stops selling its holdings of Treasury debt, known as quantitative tightening, and what Fed members do with their dot plot forecasts for future rate hikes.

Having even priced in the risk of a rate cut last week, futures now imply an 86% chance of a quarter-point rise to 4.75%-5.0%. A couple of weeks ago the market had been wagering on a half-point hike.

How Powell navigates all this in his 1830 GMT news conference could determine whether markets succumb to fresh selling or stabilise further.

"It's almost as if we’re seeing Powell flipflop a bit between that slightly less hawkish FOMC meeting in January/February and then his more hawkish appearance before the Senate," said Fiona Cincotta, market strategist at Citi Index.

"In that sense, he does need to be a bit careful about how much he does say, because there is a risk, if you're chopping and changing your tune so frequently of losing credibility with the markets."

Bond investors will be hoping Powell can instil some calm given the wild volatility of recent days. Two-year Treasury yields were last down about 6 basis points on the day at 4.11%, having made a remarkable round-trip from 5.085% to 3.635% in just nine sessions.

European bonds have gone along for the ride. German two-year yields overnight recording the biggest daily jump since 2008 as markets went back to pricing in more ECB hikes.

In currency markets, sterling rose 0.6% to $1.2295 after the British inflation data.

The euro meanwhile touched a fresh five-week high at $1.0793 , benefiting from renewed rate-hike bets.

The dollar index was a touch softer, while the dollar was a touch weaker at 132.41 yen , .

In commodities, the mild improvement in risk sentiment saw gold fade back to $1,943 an ounce and away from Monday's top around $2,009.

Oil prices eased after an industry report showed U.S. crude inventories rose unexpectedly last week in a sign fuel demand may be weakening.

Brent dipped 46 cents to $74.88 a barrel, while U.S. crude fell 48 cents to $69.19.

British house prices rose by 6.3% in January from the same month in 2022, the Office for National Statistics (ONS) said on Wednesday.

The rise was smaller than December's downwardly revised 9.3% increase.

London saw the weakest annual price rise of all English regions, with prices in the capital up 3.2%, the ONS said.

• UK inflation still in double-digit territory
• Real estate stocks fall on rate-hike concerns
• Bank stocks gain, help cut losses
• Fed decision awaited on Wednesday, BoE on Thursday
• FTSE 100 down 0.2%, FTSE 250 off 0.3%

London's exporter-heavy FTSE 100 fell on Wednesday, with real estate stocks leading the retreat, as hotter-than-expected UK inflation data raised fears of more interest rate hikes and boosted the pound.

The blue-chip FTSE 100 index (.FTSE) fell 0.2% after a near 2% bounce on Tuesday, with investors also waiting for the U.S. Federal Reserve's monetary policy decision later in the day.

The pound rose sharply against the dollar after Britain's consumer price index (CPI) inflation unexpectedly rose to 10.4% in February.

"In the markets and also on the part of the Bank of England, there's a structural underestimation of inflation," said Stefan Koopman, a senior macro strategist at Rabobank in Amsterdam.

"It's like a multi-headed hydra that pops up at various places and it's very hard to eradicate," Koopman said, referring to inflation.

The more domestically focussed FTSE 250 midcap index (.FTMC) shed 0.3%.

Recent turmoil in the banking sector after the collapse of two regional lenders in the U.S. and troubles at Credit Suisse have led traders to dial back their expectations for rate hikes.

Traders are now fully pricing in a 25-basis-point interest rate hike by the Bank of England at its monetary policy meeting on Thursday.

Terminal rate expectations also shifted after the CPI data, with traders now looking at rates peaking in August at 4.5% versus a peak of 4.3% in August.

Real estate stocks fell (.FTUB3510) 2.2%, with British Land Company (BLND.L) down 4.2% after Morgan Stanley reduced its price target.

Rising UK gilt yields also weighed on sentiment. ,

Helping cut losses were banking stocks (.FTNMX301010), which gained 0.9% as fears of a crises appeared to ease.

Retailer Marks and Spencer Group (MKS.L) rose 3.8% after Exane BNP Paribas raised its rating to "neutral" from "underperform".

Meanwhile, British Prime Minister Rishi Sunak is set to win parliamentary approval for a key element of a post-Brexit deal on Northern Ireland.

The European Central Bank's interest rate increases are just starting to take effect on the economy but their transmission may become stronger as a result of the banking turmoil, ECB President Christine Lagarde said on Wednesday.

Investors are pondering whether the ECB will be able to continue raising rates to fight high inflation despite turmoil in the banking sector that has seen two U.S. lenders go under and Swiss giant Credit Suisse need a last-minute rescue.

Lagarde said the ECB's actions to raise borrowing costs may be magnified if banks become more risk averse and start demanding higher rates when lending -- likely implying the central bank would need to increase its own rates by less.

"If, for example, banks start to apply a larger 'intermediation wedge' – meaning that at any level of the base rate they demand a higher compensation for the perceived risk they are taking on when lending – then pass-through will become stronger," Lagarde said.

She reaffirmed the ECB's determination to bring inflation in the euro zone to 2%, from 8.5% last month and noted past hikes were only just starting to be passed onto the economy.

"For inflationary pressures to ease, it is important that our monetary policy works robustly in the restrictive direction," she said. "And that process is only starting to take effect now."

The ECB has increased the rate it pays on bank deposits by a record-breaking 350 basis points to 3% since July and financial markets expect a further increase to 3.5% later this year.

The central bank for the 20 countries that share the euro last raised rates last week but it removed from its policy message an expectation that it will increase them again at upcoming meetings in light of the recent financial jitters.

Most Stock markets in the Gulf rose in early trade on Wednesday, mirroring gains in global peers ahead of the U.S. Federal Reserve's interest rate decision, as worries on a banking crisis eased.

The markets are awaiting the outcome of the central bank meeting on Wednesday, with most analysts expecting the Fed to raise rate by 25 bps and continue with its fight against inflation.

Most Gulf currencies are pegged to the U.S. dollar, while Saudi Arabia, the United Arab Emirates and Qatar usually mirror U.S. monetary policy changes.

The Qatari Stock index (.QSI) rose 0.7%, with gains in most sectors, led by finance and industry.

The region's largest bank Qatar National Bank and Qatar International Islamic Bank gained 0.6% and 1.5% respectively, while conglomerate Industries Qatar climbed 2.9%.

Saudi Arabia's benchmark stock index (.TASI) rose 0.4%, lifted by gains across all sectors led by finance, materials and energy, with real estate developer Retal Urban adding 0.8% and oil giant Saudi Aramco rising 0.6%.

Shares of Gulf Insurance Group slipped 6.1%, the sharpest intraday fall since May 16, after the insurer reported a 44% decline in a full-year pre-Zakat net profit.

In Abu Dhabi, the benchmark stock index (.FTFADGI) was up 0.2%, aided by a 1.7% gain in Alpha Dhabi Holding and 0.9% rise in First Abu Dhabi Bank, the largest lender in the United Arab Emirates.

Dubai's benchmark stock index (.DFMGI) fell 0.3% in early trade, weighed down by losses in finance and communication sectors, with Emaar Properties dropping 0.5% and Dubai Commercial Bank losing 2.1%.

Telecom services provider Emirates Integrated Telecommunications lost 3.1%, the steepest intraday decline since May 12 as it was trading ex-dividend.

The Federal Reserve is expected to raise interest rates by a quarter of a percentage point on Wednesday, a decision that will land amid a brewing political storm over the U.S. central bank's oversight of collapsed Silicon Valley Bank and with the financial world hanging on the words of one man: Jerome Powell.

In the second institutional crisis faced by Powell during his five-year tenure as Fed chief, SVB's March 10 failure has drawn scrutiny across the political spectrum, with calls to reform the central bank's governance and oversight reminiscent of what happened after a furor over Fed officials' stock trading erupted in 2021.

Two of the Fed's 12 regional bank presidents resigned as a result of that scandal and Powell launched a fast overhaul of the central bank's ethics rules as criticism mounted.

Similarly, Powell recently said the failure of California-based SVB (SIVB.O) warranted "a thorough, transparent, and swift review" of how the Fed supervised the nation's 16th largest bank, an institution with little profile on Main Street until its troubles rocked confidence in other mid-sized lenders who are important providers of business and consumer credit.

The sudden threat of financial instability stemming from a Fed-supervised institution has complicated monetary policy decisions that had been tightly focused on raising interest rates to fight inflation, and raised the stakes for Powell in explaining the outcome of this week's meeting and the Fed's response to the SVB collapse.

As policymakers kicked off their latest Federal Open Market Committee meeting, U.S. Senator Rick Scott, a Republican and possible 2024 presidential candidate, demanded in a letter to Powell that the Fed chief address the "failures and malfeasance" behind the collapse of SVB and another U.S. lender, Signature Bank (SBNY.O), and "name the individual(s) being fired."

Similar criticism has come from the left, with Democratic U.S. Senator Elizabeth Warren, a longtime Powell opponent, saying she had lost confidence as well in San Francisco Fed President Mary Daly, whose bank was responsible for supervising SVB.

The Fed has said its review of SVB's supervision will be finished by May 1 and released to the public.

Still, turbulence in financial markets and the banking system is likely to feature prominently in Powell's post-meeting news conference, which is scheduled to begin at 2:30 p.m. EDT (1830 GMT). The U.S. central bank will release its policy statement and new economic projections from Fed officials at 2 p.m. EDT.

Banking stocks that lost roughly 20% of their value over two turbulent weeks appeared as of Tuesday to have found some footing in the wake of the Fed's