Middle East tensions weigh on financial markets; crypto firms Gemini, Genesis and DCG sued – business live | Business

Back in the UK, the Treasury’s independent economic forecaster has admitted that it underestimated the scale of the inflation shock triggered by the Covid pandemic and Russian invasion of Ukraine.

Blaming the rapid succession of shocks hitting the economy, the Office for Budget Responsibility said in its annual forecasting evaluation report that it “significantly underestimated the strength and persistence of inflation”.

It also found corporate profits had significantly stronger than expected in the past two years, including a 50% leap in finance industry profits fuelled by a boom in the banking industry, rather than the 13% rise it had anticipated.

In its annual forecasting evaluation report, the OBR said it had made some “genuine errors,” but that many of the differences between its predictions and the outcomes for the economy had been difficult to anticipate.

It says:

“To a significant extent these differences between outturns and previous forecasts are inevitable given the inherent difficulty in forecasting the path of the economy and the consequent effect on the public finances, which has been amplified recently by unforecastable shocks that hit the economy.”

Just in: there’s been a drop in Americans filed new claims for unemployment support.

The number of initial jobless claims fell to 198,000 last week, down from 211,000 in the previous seven days, and lower than expected.

That suggests US firms are holding onto workers, despite the pressure from higher interest rates.

Newsflash: New York Attorney General Letitia James is suing cryptocurrency companies Gemini, Genesis, and Digital Currency Group (DCG), accusing them of defrauding hundreds of thousands of investors.

A lawsuit filed today in New York accuses the three firms of defrauding more than 230,000 investors, including at least 29,000 New Yorkers, of more than $1bn.

The New York Attorney General’s office (OAG) says that Gemini lied to investors about an investment program it ran with Genesis called Gemini Earn.

Gemini is a New York-based digital asset platform that allows investors to buy and sell cryptocurrencies.

OAG expains:

Gemini repeatedly assured investors that investing with Genesis through their Gemini Earn program was a low-risk investment. However, OAG’s investigation found that Gemini’s internal analyses of Genesis showed that the company’s financials were risky.

The lawsuit alleges that Gemini knew Genesis’ loans were undersecured and at one point highly concentrated with one entity, Sam Bankman-Fried’s Alameda, but did not reveal this information to investors.

The lawsuit also charges Genesis, its former CEO Soichiro Moro, its parent company, DCG, and DCG’s CEO Barry Silbert with defrauding investors and the public by trying to conceal more than $1.1bn.

Those losses were borne by investors, the OAG says.

Attorney General James says “middle-class investors” suffered losses, adding:

“Hardworking New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Gemini Earn.

Instead, Gemini hid the risks of investing with Genesis and Genesis lied to the public about its losses. This fraud is yet another example of bad actors causing harm throughout the under-regulated cryptocurrency industry.

My office will continue our efforts to stop deceptive cryptocurrency companies and push for stronger regulations to protect all investors.”

There are more details of the case here.

The rally in oil company shares this year has helped London to recapture its crown as Europe’s largest stock market from Paris, according to Bloomberg.

Bloomberg’s own market capital indexes show that the combined market capitalization of primary listings in London is now $2,888.4bn, ahead of Paris’s $2,887.5bn.

London’s market has been helped by strengthening share prices for oil firms, such as BP (up 15% this year), and Shell (up almost 18%).

Some of France’s luxury good makers, though, have been hit by China’s weak recovery, with shares in LVMH down almost 4% this year.

London was overtaken by Paris last November, which prompted concerns that Brexit and the UK’s economic woes were hurting share prices.

But while today’s reversal will be welcome, it doesn’t tell the full story. Bloomberg’s calculations only include actively traded, primary securities on the country’s exchanges, and does not include exchange-traded funds (ETFs) or American Depositary Receipts (ADRs).

Include those, and London was still larger last year.

There’s drama in the oil markets again today, where prices are down almost 2%.

Brent crude has dropped back below $90 per barrel, away from yesterday’s two-week high of $93.

The tumble comes after the US government announced last night it is easing sanctions on Venezuela’s oil sector.

The U.S. Treasury Department has issued a new licence authorizing Venezuela – a member of Opec – to produce and export oil to its chosen markets for the next six months without limitation.

The prospect of more crude hitting the markets has pushed down the oil price, explains Joshua Mahony of Scope Markets.

For energy markets, the prospect of conflict in the Middle East has been overshadowed by the confirmation that sanctions on Venezuelan energy exports have been lifted, with Biden hoping to negate the inflationary efforts of OPEC+ by flooding the world in cheap oil.

However, while Venezuela holds the largest proven oil reserves of any country, years of underinvestment means that the upside may be limited to roughly 200,000 barrels per day for the time being.

The deal between the Washington and Caracas should also allow banned opponents of President Nicolás Maduro to compete in next year’s election.

Over in Jakarta, the central bank of Indonesia has unexpectedly raised interest rates, to support its currency in the face of rising geopolitical risks.

Bank Indonesia increased its seven-day reverse repurchase rate by 25 basis points to a fresh four-year high of 6%, surprising economists who had expected no change today.

The move follows rising pressure on the rupiah, which had fallen to its lowest in over three years as nervous investors sought out safe-haven assets.

BI governor Perry Warjiyo said.

“This increase is to strengthen stabilisation measures for the rupiah against the impact of increasing global uncertainty, and as a pre-emptive and forward-looking step to mitigate its impact on inflation through imported goods.”

Warjiyo described the global market condition as “fast changing and very unpredictable”.

ING analyst Nicholas Mapa says Bank Indonesia was forced to raise interest rate by the “intense pressure” on the rupiah.

Mapa explains:

The central bank believes that the global economy is set to face increasing headwinds with uncertainty on the uptick, and indicated that a “stronger policy response” was needed given the heightened uncertainty in the financial markets. It now predicts that global growth should settle around 2.9% year-on-year in 2023 and 2.8% next year with the US Federal Reserve now set to keep rates higher for longer. Given the backdrop, BI sees capital outflow persisting for the rest of the year.

With the Rupiah down 1.77% for the month, BI had little choice but to whip out additional policy support for the currency.

Britain’s stock market is open…. and shares are falling.

The FTSE 100 index of blue-chip shares has shed 77 points, or 1%, to hit 7512 points – the lowest in over a week.

Every sector is in the red, led by Industrial stocks, Technology and Financials.

Pest control firm Rentokil are down 13%, after warning of softer demand from consumers in North America.

Rentokil says revenues at its US products wholesale distribution business fell by 2.5% in the quarter, reflecting “lower demand for chemical products for use in pest control and in turf and ornamental end markets”.

Online property portal Rightmove have also fallen by 13%, after its smaller rival OnTheMarket agreed to be bought by CoStar Group, a $33bn New York-listed property giant (announcement here).

The rise in US government bond yields is causing anxiety in the markets, reports Kyle Rodda of Capital.com.

The yield (or interest rate) on 10-year Treasuries is nearing 5%, for the first time in 16 years. This indicates investors are concerned that inflation will remain higher for longer than hoped, prompting central banks to keep monetary policy tight.

Rodda says this increase (to 4.96% right now) is weighing on share prices, and financial conditions.

While the crisis in the Middle East is a source of significant uncertainty, a problem running at the markets like a freight train is the continued upward pressure on bond yields.

The causes of the move remain multi-faceted: resilient US growth, profound US deficits and subsequently onerous Treasury issuance, supply shocks stemming from the energy markets, and the Fed’s quantitative tightening. There’s debate about which factor reigns supreme as the primary driver of bond market dynamics.

Nevertheless, the inescapable reality US Treasuries are climbing towards 5% right across the curve, which is weighing heavily on equity market valuations and future global financial conditions.

There’s bad news from the telecoms sector this morning – Nokia is planning to cut up to 14,000 jobs

The Finnish telecoms equipment maker is cutting its workforce in a new cost-cutting drive, following a drop in sales.

The drive will cut its workforce from 86,000 today, to between 72,000 and 77,000, as Nokia aims to cut its costs by up to €1.2bn over three years.

The news comes as Nokia also announced that sales fell by 20% in the last quarter, which it blames on “macroeconomic uncertainty and higher interest rates” which are hitting spending by mobile operators.

Nokia’s President and CEO Pekka Lundmark said:

“We continue to believe in the mid to long term attractiveness of our markets. Cloud Computing and AI revolutions will not materialize without significant investments in networks that have vastly improved capabilities.

However, while the timing of the market recovery is uncertain, we are not standing still but taking decisive action on three levels: strategic, operational and cost.

First, we are accelerating our strategy execution by giving business groups more operational autonomy. Second, we are streamlining our operating model by embedding sales teams into the business groups and third, we are resetting our cost-base to protect profitability. I believe these actions will make us stronger and deliver significant value for our shareholders.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The financial markets remain gripped by anxiety over rising tensions in the Middle East, and concerns that the Israel-Hamas war could drive up oil prices, fuelling inflation.

Markets across the Asia-Pacific region are in the red today, with Japan’s Nikkei losing 1.85%, and China’s CSI 300 down 1.9%. That follows a sell-off yesterday in Europe, and then losses on Wall Street.

Gold hit its highest level since 1 August yesterday, touching $1,962 per ounce, as investors favoured traditional safe-haven assets.

Oil jumped too, with Brent crude hitting $93 per barrel on Wednesday, before slipping back to $91 this morning.

Investors have also been driving down the price of government bonds.

This pushed the yield, or interest rate, on 10-year US government bonds to their highest since 2007, early in the financial crisis.

Global investors are focused on the Middle East, where US president Joe Biden yesterday met with Israeli PM Benjamin Netanyahu – who has pledged to allow aid into Gaza via Egypt.

But Biden’s meetings with leaders from the Arab world were cancelled, following the explosion at Gaza’s al-Ahli Arab hospital

Risky assets face the double risks of higher real yields and increasing geopolitical tensions, says Mohit Kumar, chief economist for Europe at investment bank Jefferies.

He told clients:

Geopolitical risks moved up a notch (yesterday) as Biden’s peace visit was snubbed by a number of Arab countries. Peace efforts are ongoing with the UK’s PM expected to make a visit to the region.

Rating agency Standard & Poor’s fears that the crisis could create a new inflationary shock, and hurt global growth, if it escalates.

In a new report they warned:

“Even in the absence of a material energy supply shock, the evident sensitivity in energy prices to recent events indicates that some inflationary pressures could persist through the northern hemisphere winter.”

The agenda

• 8.30am BST: Bank of Indonesia sets interest rates

• 1.30pm BST: US weekly jobless claims

• 5pm BST: Federal Reserve chair Jerome Powell speaks at the Economic Club of New York