Day: June 3, 2023

(C) Reuters. FILE PHOTO: Russian Deputy Foreign Minister Sergei Ryabkov attends a news conference at the Russian Mission after his speech at the Conference on Disarmament at the United Nations in Geneva, Switzerland March 2, 2023. REUTERS/Denis Balibouse

By Guy Faulconbridge

MOSCOW (Reuters) -Russia warned the United States on Saturday it should stop brandishing ultimatums over the collapse of arms control agreements, saying Moscow would only return to a nuclear arms reduction treaty if Washington abandons its hostile stance.

Russia and the United States, by far the biggest nuclear powers, have both expressed regret about the disintegration of the tangle of arms control treaties which sought to slow the Cold War arms race and reduce the risk of nuclear war.

Amid the crisis triggered by the Ukraine conflict, President Vladimir Putin announced in February that Russia was suspending participation in the New START treaty – an agreement signed in 2010 that limits the number of Russian and U.S. deployed strategic nuclear warheads.

The United States said this week it would stop providing Russia some notifications required under the treaty, including updates on its missile and launcher locations, to retaliate for Moscow’s “ongoing violations” of the accord.

Russia’s point man for arms control, Deputy Foreign Minister Sergei Ryabkov, said Washington had informed Moscow about the move ahead of going public with it so it was no surprise.

But Ryabkov said the pillars of arms control were collapsing and were in a “semi-lethal” condition due to what he cast as the hostile policies of the United States.

“Talking to the Russian Federation in the language of ultimatums just does not work,” Ryabkov told Russia’s three main news agencies.

“Through the fault of the United States, many elements of the former architecture in this area have either been completely destroyed or moved in a semi-lethal state.”

DETAILED ASSESSMENT

The United States is eager to begin discussions with Russia on a strategic arms limitation pact to replace New START when it expires in 2026, U.S. national security adviser Jake Sullivan said on Friday.

Ryabkov said Russia would give a detailed assessment of Sullivan’s remarks later.

After the fears of nuclear war triggered by the 1962 Cuban Missile Crisis, the United States and the Soviet Union sought to slow the arms race with what ultimately became a tangle of arms control agreements which gave each side greater understanding of their foe’s arsenal and capability.

Both Moscow and Washington, which still control about 90% of the world’s nuclear weapons, slashed the number of their weapons as the Soviet Union crumbled.

The New START Treaty, struck in 2011, obliged the United States and Russia to limit deployed intercontinental ballistic missiles, deployed submarine-launched ballistic missiles, and deployed heavy bombers equipped for nuclear armaments.

It also put limits on nuclear warheads on those deployed missiles and bombers and the launchers for those missiles. Both sides reached the central limits of the treaty by Feb. 5, 2018, and the treaty was extended to Feb. 4, 2026.

“Our decision to suspend the START Treaty is unshakable,” the TASS news agency quoted Ryabkov as saying. “Our own condition for returning to a fully operational treaty is for the U.S. to abandon its fundamentally hostile stance toward Russia.”

There was one positive glimmer: Ryabkov said the U.S. appeared willing to abide by the 1998 Ballistic Missile Launch Notification Agreement.

“Accordingly, a certain transparency and predictability will remain in this area and will allow us to avoid further dangerous exacerbation,” he said.

(C) Reuters. FILE PHOTO: Turkish President Tayyip Erdogan greets his supporters following early exit poll results for the second round of the presidential election in Istanbul, Turkey May 28, 2023. Murat Cetinmuhurdar/Presidential Press Office/Handout via REUTERS

By Huseyin Hayatsever and Ezgi Erkoyun

ANKARA (Reuters) -President Tayyip Erdogan signalled on Saturday his newly-elected government would return to more orthodox economic policies when he named Mehmet Simsek to his cabinet to tackle Turkey’s cost-of-living crisis and other strains.

Simsek’s appointment as treasury and finance minister could set the stage for interest rate hikes in coming months, analysts said – a marked turnaround from Erdogan’s longstanding policy of slashing rates despite soaring inflation.

After winning a runoff election last weekend, Erdogan, 69, who has ruled for more than two decades, began his new five-year term by calling on Turks to set aside differences and focus on the future.

Turkey’s new cabinet also includes Cevdet Yilmaz, another orthodox economic manager, as vice president, and the former head of the National Intelligence Organisation (MIT) Hakan Fidan as foreign minister, replacing Mevlut Cavusoglu.

Erdogan’s inauguration ceremony at Ankara’s presidential palace was attended by NATO Secretary-General Jens Stoltenberg, Venezuelan President Nicolas Maduro and other dignitaries and high-level officials.

The apparent U-turn on the economy comes as many analysts say the big emerging market is heading for turmoil given depleted foreign reserves, an expanding state-backed protected deposits scheme, and unchecked inflation expectations.

Simsek, 56, was highly regarded by financial markets when he served as finance minister and deputy prime minister between 2009 and 2018.

Reuters reported earlier this week Erdogan was almost certain to put him in charge of the economy, marking a partial return to more free-market policies after years of increasing state control of forex, credit and debt markets.

QUESTION OF INDEPENDENCE

Analysts said that after past episodes in which Erdogan pivoted to orthodoxy only to quickly return to his rate-cutting ways, much would depend on how much independence Simsek is granted.

“This suggests Erdogan has recognised the eroding trust in his ability to manage Turkey’s economic challenges. But while Simsek’s appointment is likely to delay a crisis, it is unlikely to present long-term fixes to the economy,” said Emre Peker, a director at Eurasia Group covering Turkey.

“Simsek will likely have a strong mandate early in his tenure, but face rapidly increasing political headwinds to implement policies as March 2024 local elections draw near.”

Erdogan’s economic programme since 2021 stresses monetary stimulus and targeted credit to boost economic growth, exports and investments, pressing the central bank into action and badly eroding its independence.

As a result, annual inflation hit a 24-year peak beyond 85% last year before easing.

The lira has lost more than 90% of his value in the last decade after a series of crashes, the worst in late 2021. It hit new all-time lows beyond 20 to the dollar after the May 28 vote.

‘WAYS TO RECONCILE’

Turkey’s longest-serving leader, Erdogan won 52.2% support in the runoff, defying polls that predicted economic strains would lead to his defeat.

His new mandate will allow Erdogan to pursue the increasingly authoritarian policies that have polarised the country, a NATO member, but strengthened its position as a regional military power.

At the inauguration ceremony, attended by Hungarian Prime Minister Viktor Orban and Armenian Prime Minister Nikol Pashinyan, Erdogan struck a conciliatory tone.

“We will embrace all 85 million people regardless of their political views … Let’s put aside the resentment of the election period. Let’s look for ways to reconcile,” he said.

“Together, we must look ahead, focus on the future, and try to say new things. We should try to build the future by learning from the mistakes of the past.”

Earlier, reading out the oath of office, Erdogan vowed to protect Turkey’s independence and integrity, to abide by the constitution, and to follow the principles of Mustafa Kemal Ataturk, founder of the modern secular republic.

Erdogan became prime minister in 2003 after his AK Party won an election in late 2002 following Turkey’s worst economic crisis since the 1970s.

In 2014, he became the country’s first popularly elected president and was elected again in 2018 after securing new executive powers for the presidency in a 2017 referendum.

The May 14 presidential election and May 28 runoff were pivotal given that the opposition had been confident of ousting Erdogan and reversing many of his policies, including proposing sharp interest rate hikes to counter inflation, running at 44% in April.

In his post-election victory speech, Erdogan said inflation was Turkey’s most urgent issue.

(Writing and additional reporting by Jonathan Spicer; Editing by Frances Kerry, Giles Elgood and Christina Fincher)

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(C) Reuters. FILE PHOTO: Republican presidential candidate and Florida Governor Ron DeSantis speaks at a campaign event in Rochester, New Hampshire, U.S., June 1, 2023. REUTERS/Brian Snyder
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(Refiles to fix typo in word ‘want’ in para 14)

By James Oliphant and Nathan Layne

GILBERT, South Carolina (Reuters) – In the first full week of his 2024 presidential campaign, Florida Governor Ron DeSantis worked hard to define himself as a candidate to voters — and just as hard to define the man who stands in his way for the Republican nomination.

As he toured 12 cities in three early-voting states, DeSantis, 44, made his case that he is the more conservative and consistent alternative to Donald Trump, the former president and current front runner in the race.

Trump fired back in a sudden escalation of the war of words between the two men that not only heightened tensions in the Republican race but also provided insight into DeSantis’ initial strategy.

Touring Iowa, New Hampshire and South Carolina this week, the governor continued to cast himself as an unapologetic warrior on issues such as abortion, immigration, government spending, crime and LGBTQ rights.

But for the first time, DeSantis began to draw sharp contrasts with Trump, painting the former president as a politician who had lost his way and who became a creature of the government he was supposed to transform by compromising too readily.

Trump’s camp has tried to do the same to DeSantis, calling him a “swamp puppet” and playing down his accomplishments as Florida’s governor. In a party where being a political outsider still holds broad appeal, neither wants to be tagged as the candidate of the establishment.

“That’s why they’re doing it,” said David Kochel, a veteran Republican presidential campaign operative in Iowa. “It’s a dirty word.”

DeSantis’ tour of the three states that will hold the first nominating contests of the Republican primary next year was aimed at quickly cementing himself as Trump’s largest threat.

He largely played to small but packed venues and supportive crowds, even if several voters told Reuters they had not decided on who to vote for.

In speeches, DeSantis notably did not criticize Trump by name, but instead made more opaque references, telling audiences that he would be the candidate to “finally” secure the U.S. southern border or that “leadership” was more important than “building a brand.”

It was a way of nodding to Trump’s supporters that he would continue his work without antagonizing them by insulting the former president, who still has many fiercely loyal supporters.

But in speaking to the media, DeSantis was less guarded. He suggested Trump, his main rival for the nomination had moved “left” during his White House term and that he was no longer the same candidate that ran in 2016.

DeSantis called Trump’s penchant for giving his opponents nicknames “petty” and “juvenile,” in an interview with a New Hampshire radio station on Thursday.

“I don’t think that’s what voters want and honestly, I think his conduct, which has been doing for years now, I think that’s one of the reasons he’s not in the White House now,” DeSantis said.

DeSantis contrasted Trump’s time in office with his own as Florida governor, where he and the Republican legislature have enacted a long string of conservative reforms.

“There’s always going to be ways you can say you can’t do something,” DeSantis told a crowd in Gilbert, South Carolina on Friday as he wound up his tour. “There will always be easy excuses that you can proffer.”

Trump dominates the Republican field with 49% support, while DeSantis is next with 19%, according to the latest Reuters/Ipsos opinion poll conducted in May.

TRUMP ALTERNATIVE

DeSantis’ message appealed to voters such as Doug Lambert, 58, the vice chair of the Belknap County Republican Party in New Hampshire.

“I’ve witnessed Republican after Republican get elected to whatever office and then they all kind of backed down and compromised,” Lambert said. “Not that there’s anything wrong with sensible compromise, but I really think that if we put conservatism out there, a majority of the American people will realize that it’s a good thing.”

Maureen Plyler, 74, who watched DeSantis’ event in Gilbert, was more skeptical, saying she favored Trump’s business background. “He’s just proven,” she said. “The economy was great.”

She was unhappy with the increasingly rancorous exchanges the two candidates. “You’re not changing my mind,” she said.

DeSantis moderated his message at times. In his four stops in New Hampshire, with its large pool of independent voters, he didn’t mention the strict abortion ban Florida passed this year. But it was a top talking point in Iowa and South Carolina, where evangelical Christians hold more sway.

DeSantis also contrasted himself with the billionaire Trump in less obvious ways, calling himself a “blue-collar kid” who has had to work for everything and telling audiences that he decided to join the military instead of pursuing a lucrative career.

He frequently brought his wife, Casey DeSantis, to the stage, where they spoke about raising their young children, a reminder that DeSantis represents a wholly separate generation from the 76-year-old Trump.

Bill Hixon, a member of the South Carolina House of Representatives who introduced DeSantis in Gilbert, said he was ready to move on.

When Trump became president, Hixon said, “I was so excited. But frankly right now, I’ve lost my excitement.”

A woman in the crowd replied with a soft “Amen.”

(This story has been refiled to fix typo in ‘want’ in paragraph 14)

(C) Reuters. FILE PHOTO: U.S. President Joe Biden delivers a speech on bipartisan legislation that lifts the federal government’s $31.4 trillion debt ceiling, in his first Oval Office address to the nation at the White House in Washington, U.S., June 2, 2023. REUTERS/

By Trevor Hunnicutt

WASHINGTON (Reuters) -President Joe Biden on Saturday signed a bill that suspends the U.S. government’s $31.4 trillion debt ceiling, averting what would have been a first-ever default.

The House of Representatives and the Senate passed the legislation this week after Biden and House of Representatives Speaker Kevin McCarthy reached an agreement following tense negotiations.

The Treasury Department had warned it would be unable to pay all its bills on June 5 if Congress had failed to act by then.

Biden signed the bill at the White House a day after hailing it as a bipartisan triumph in his first-ever Oval Office address to the nation as president.

“Thank you to Speaker McCarthy, Leader Jeffries, Leader Schumer, and Leader McConnell for their partnership,” the White House said in a statement announcing the bill’s signing, naming the Democratic and Republican leaders of the House and Senate.

“It was critical to reach an agreement, and it’s very good news for the American people,” Biden said on Friday. “No one got everything they wanted. But the American people got what they needed.”

The Republican-controlled House voted 314 to 117 to approve the bill, and the Democrat-controlled Senate voted 63 to 36.

Fitch Ratings said on Friday the United States’ “AAA” credit rating would remain on negative watch, despite the agreement that will allow the government to meet its obligations.

(C) Reuters.

Investing.com — The Federal Reserve looks set to kick the rate-hike can down the road in June, but is unlikely to pick it up, Morgan Stanley says, as incoming economic data won’t support a restart, keeping the central bank on an extended pause before a cut in Q1 next year.

“We continue to see the Fed on hold at the June meeting, and think the bar will be too high for the Fed to resume hiking,” Morgan Stanley said in a Friday note. “We continue to see the Fed on extended hold with the first cut in 1Q24.”

The Making of a June Skip

The growing expectations for the Fed to pause in June come even as Friday’s payrolls report showed far more jobs were created in May than economists had expected.

The numbers from the payroll report, also referred to as the establishment survey, were “undeniably strong,” Morgan Stanley says.

But weakness in the household survey showing jobs fell by 310,000 in June, the “unusually large” increase in the unemployment rate, and the slowing in labor income support a pause in June, it added.

But not everyone agrees . . . Scotiabank Economics said the case for a June hike “remains solid, … adding that expectations the Fed would be more focused on the uptick in unemployment is “pure rubbish.”

The uptick in unemployment was driven by a 130,000 rise in the size of the labor force and weakness in the less accurate household survey. “Those numbers are pure statistical noise,” it added.

Still, the case for a pause next month was strengthened after Fed Governor and vice chair nominee Philip Jefferson and Philadelphia Federal Reserve President Patrick Harker signaled earlier this week the Fed could skip hikes at the June meeting to assess incoming data.

Both voting Fed-members, however, stressed that a potential skip on hikes wouldn’t imply that the Fed’s tightening cycle had come to an end.

While markets appear to be taking the Fed at its word, with pricing still showing a July hike remains in play, Morgan Stanley isn’t so sure. “After the June meeting, we think the hurdle to resume hiking only increases.”

The Potential Hop Into a Prolonged Pause

Between the June and July meeting, the incoming data will be sparse and aren’t likely to meet the high bar to show a definitive re-acceleration in the labor market and the pace of inflation.

“It would take a 0.7% monthly increase in core-core services in June for the trend pace to reaccelerate, and similarly a payroll print greater than 200,000,” Morgan Stanley says, forecasting both measures to slow in June.

June CPI inflation is expected to show deceleration in core services ex-medical, ex-housing, on both a month-on-month basis and three-month annualized trend basis to 0.29% and 3.36% respectively, while the June payrolls is seen slowing to 180,000, resuming a slowdown in the three-month moving average, it added.

The expected slowing in the labor market will likely dent wage growth and put the consumer and economy in the crosshairs at a time when savings are running out, adding further ammunition for the Fed to persist with a pause.

The $2.2 trillion in excess savings that was on consumer balance sheets during the early days of the recovery … is down to $822 billion, according to Jefferies.

The outlook for consumer spending, which makes up about two-thirds of economic growth, remains “quite bleak in our view because of this balance sheet fatigue,” it added.

As the incoming data keeps the Fed on pause for July, the central bank’s penchant for inertia on monetary policy, suggests it’ll likely remain on pause.

“The FOMC tends to operate under the law of inertia, once it stops hiking, it will be difficult to resume, especially in the very next meeting,” Morgan Stanley said.

Recent history adds credence to the claim of “Fed inertia.”

It wasn’t too long ago that the Fed was dragging its heels, refusing to withdraw extraordinary monetary policy and acknowledge signs that inflation wasn’t transitory.

It took months for the Fed to eventually turn off the liquidity spigot, and what followed was a game of catch-up as the central bank’s unleashed the fastest pace of rate hikes in four decades to rein in inflation.

An Eventual Jump to Cuts in Q1’24?

The Fed will eventually cut rates starting in first-quarter 2024, Morgan Stanley estimates.

But bets on a cut have shifted around so much, and Q1 is some ways off with a slew of data still due, suggesting that forecasting the pivot is now almost expected to come with a side order of mea culpa.

In the aftermath of the banking turmoil, markets were forecasting a pivot to a cut by the summer, but that was pushed out to the fall and now bets on a pivot by year-end are hanging by a thread, if not already priced out. The current consensus is now more in line with the consistent message from the Fed that rate cuts aren’t on the table this year.