Tired of Waiting 26 May 2023

The 3,321 real estate and properties transactions totalled US$ 3.02 billion, during the week, ending 26 May 2023. The sum of transactions was 220 plots, sold for US$ 692 million, and 2,398 apartments and villas, selling for US$ 1.59 billion. The top three transactions were all for plots of land, one in Madinat Al Mataar, sold for US$ 37 million, and the second in Business Bay for US$ 14 million, and the third in Hadaeq Sheikh Mohammed bin Rashid also for US$ 14 million. Wadi Al Safa 3 recorded the most transactions, with sixty-one sales, worth US$ 198 million, followed by forty-one sales in Al Hebiah Fifth, for US$ 14 million, and eighteen sales in Jabal Ali First, valued at US$ 19 million. The top three transfers for apartments and villas were all for villas in Al Safouh First, valued at US$ 20 million, followed by two villa sales in World Islands, for US$ 19 million and the other for US$ 17 million. The mortgaged properties for the week reached US$ 490 million, with the highest being for a plot of land in Al Thanayah Fourth mortgaged for US$ 39 million, whilst one hundred and fifty-four properties were granted between first-degree relatives worth US$ 254 million.

On Wednesday, Bugatti Residences was launched, marking the first ever global residential project by the iconic French luxury carmaker, in partnership with local developer, Binghatti. Located in Business Bay, the 43-floor tower will house 171 mansions and eleven sky mansion penthouses, with each sky mansion penthouse occupying an entire floor; prices will start at US$ 5.2 million (AED 19.09 million, with 1909 being the year that Bugatti cars first hit the market). The development will boast a Riviera-inspired beach, private pool, jacuzzi spa, fitness club, chef’s table, private valet, private members club and two garage-to-penthouse car lifts. One unique feature sees residents being able to drive into the lift and then straight to their floor as each unit will have a dedicated parking space – with the highest penthouse having twenty slots for parking. The project is slated for completion by the end of December 2026. It is reported that Dubai is the top location for branded residences globally, based on the supply of completed and pipeline schemes.

Because of very high demand, allied with a very limited supply chain, there is no doubt that Dubai’s ultra-luxury properties is set to continue to grow strongly at least until the end of 2024.  Another record-breaking deal was recorded this week when a buyer paid US$ 114 million for a penthouse in Marsa Al Arab; this equated to US$ 4,632 per sq ft. This beat the previous record set in February – US$ 112 million in Bvlgari Lighthouse, Jumeirah Bay Island. The penthouse is situated on the highest floor at the Marsa Al Arab Hotel, (which will feature 386 rooms/suites, four penthouses and eighty-three luxury hotel apartment suites, spanning an impressive 24,628 sq ft).

Khansaheb has been appointed as the main contractor, by Palma Development, for its Serenia Living project, a luxury beachfront development located on the first plot of the west crescent of Palm Jumeirah. The luxury beachfront development will consist of 226 exclusive apartments and penthouses, including one of the most exclusive Sky Mansions in Dubai valued at over US$ 54 million. Serenia Living is the developer’s second project with Khansaheb, following the successful completion of Serenia Residences The Palm in 2018. Completion date is slated for Q4 2025, with handover happening in Q1 2026.

This week, Nakheel announced the launch of Nakheel Marinas Dubai Islands, that can accommodate a total of thirteen superyachts; located on the northern coastline at Dubai Islands; the marina itself will accommodate 248 wet berths for vessels of up to 47 mt and forty dry berths for trailers of up to 20 mt. The project will feature dock assistance, club car transfer, utilities, waste collection, pump-out services and Wi-Fi, and will be in walking distance of the marina. In August 2022, the developer unveiled a master plan for Dubai Islands, the project formerly known as Deira Islands, in tandem with the Dubai 2040 Urban Master Plan. The development includes five islands spread over an area of 17 sq mt., with each island having its own offerings, with cultural centres, recreational beaches and beach clubs. The islands will be home to more than eighty resorts and hotels.

HH Sheikh Mohammed bin Rashid Al Maktoum approved the ‘Dubai Master Plan for Public Beaches‘ that aims to increase the total length of public beaches in the emirate by 400%. The new scheme, part of the Dubai 2040 Urban Master Plan, will see the opening of new beaches and the development of existing ones, with advanced facilities. The Dubai Ruler also noted that the emirate is committed to ensuring the highest standards of excellence in urban development and that the government places the utmost priority on improving the quality of life and ensuring the happiness of citizens, residents and visitors. By 2040, it is expected that the total length of Dubai’s public beaches will increase from 21 km to 105 km, and that public beaches spanning 84 km will be added to cater to the growth in the emirate’s population and the influx of tourists. Sheikh Mohammed was briefed on Phase I of the Master Plan spanning 54 km of public beaches, which includes the development of the Jebel Ali Public Beach in collaboration with Nakheel. A direct public bus route will be launched to link Jebel Ali Metro Station to the new Jebel Ali Public Beach.

According to the latest report by the World Travel and Tourism Council, the travel and tourism sector is expected to contribute US$ 49.2 billion – equating to 10% of the country’s GDP; the latest figure is now only 1.6% lower than record pre-Covid levels. The WTCC noted that “the sector is recovering at a rapid pace, proving the UAE continues to grow in popularity amongst international travellers,” and that the sector will top pre-Covid numbers this year, and that the 758k jobs will include 7k new positions; last year, the sector added 89k jobs. Over the next decade, the industry expects to contribute US$ 64.2 billion, (representing 10.2% of the country’s GDP) and employ 872k, (about 12.0% of the country’s workforce). Interestingly, last year domestic spend in this sector surged by 36% to US$ 12.8 billion, (up 19% on 2019 pre-Covid levels), whilst international visitors contributed US$ 32.0 billion to the economy – a 65.3% year-on-year growth, but still down 19.0% from 2019 levels. The DDTCM is confident that international visitor numbers will top the pre-Covid number by the end of this year.

Dubai Festivals and Retail Establishment has announced the return of its biggest shopping weekend, starting today, 26 May. The 3 Day Super Sale will see up to 90% off on brands in outlets and malls across the city, with deals on fashion, beauty, lifestyle, furniture, electronics and more. Brands include KIKO Milano, Sephora, Bath & Body Works, 1915 by Ahmed Seddiqi, Rivoli, Homes R Us, Ikea, Jashanmal, Marks & Spencer, Lacoste, Better Life, Sharaf DG, Aldo and Al Jaber Optical, among others. Participating shopping centres and destinations include Mall of the Emirates, City Centre Mirdif, City Centre Deira, City Centre Me’aisem & City Centre Al Shindagha, Dubai Festival City Mall, Dubai Festival Plaza, Nakheel Mall, Ibn Battuta, Circle Mall, Mercato, Town Centre, The Beach, Bluewaters, City Walk and The Outlet Village.

Emirates has announced that it will be offering free Wi-Fi to all passengers on its flights, as a new enhancement to the carrier’s inflight connectivity means that all its passengers in every class of travel can enjoy some form of free connectivity once they sign up to Emirates Skywards.  To date, Emirates has invested US$ 300 million to improve inflight connectivity and, with recent enhancements, an average of 450k passengers use the service. Any Skyward member – in whatever category – and in any class, can make use of free app messaging. Platinum Skywards members have complimentary internet access in all classes, whilst first class passengers will have unlimited free internet if they are Skywards members, as will Silver, Gold and Platinum Skywards members travelling in Business Class. The airline also announced that it will offer new high-speed, inflight broadband powered by Inmarsat’s GX Aviation, onboard fifty new Airbus A350 aircraft – scheduled to enter service next year.

Prior to a major international auction in New York early next month, the Dubai Diamond Exchange has hosted the unveiling of two extraordinary gemstones – Estrala de FURA and the Eternal Pink. The former will be the largest, (at 55.22 carat), ever to appear at an auction and is slated to sell for more than US$ 30 million at its Dubai Diamond Exchange (DDE). Meanwhile, the Eternal Pink, the most vivid pink diamond to come to market, is expected to sell at north of US$ 35 million. It is estimated that, last year, the country posted a 17.0% growth, on the year, in the value of diamonds traded at a combined total of US$ 37.4 billion for rough and polished diamonds. – up by 7.0% and 42.0% respectively. Not satisfied to be a leading global hub in rough and polished diamonds, the DDE is working on adding further value to the coloured gemstone industry and has recently hosted tenders with leading coloured gemstone companies. The DDE currently has over 1.2k member companies.

With corporate tax starting on 01 June 2023, the federal Ministry of Finance announced on Monday further clarifications on private pensions, social security and participation, and accountancy methods. The first covered further conditions for private regulated pension funds and social security funds in the UAE to be exempt from the tax and is in tandem with international tax practices, so that UAE private pension or social security funds exempt status is also recognised when investing internationally, and double tax treaty benefits can be obtained. The second decision of the day confirmed that International Financial Reporting Standards are the applicable accounting standards in the UAE and must be used by larger businesses that have revenues of more than US$ 13.6 million (AED 50 million). Businesses with revenue under that threshold, can apply IFRS, whilst those whose revenue fall below US$ 817k (AED 3 million) can use the cash basis for their accounts. The decision on Participation Exemption provides for Corporate Tax exemptions on dividends, profit distributions, and capital gains from a Participating Interest, which is defined as a 5% or greater ownership interest in another entity’s shares or capital, held for at least twelve months.

S&P Global Ratings expects that Dubai government’s debt burden, as part of its GDP, will decline this year, driven by a continued improvement in the local economy, despite an apparent slowdown in global economic growth. It forecasts that the emirate’s gross general government debt will fall from its cyclical high of 78% of GDP in 2020 to 51% this year – and could be even better if “the government’s debt stock could fall even faster if the reduction in nominal debt, which occurred in 2021 and to a more significant extent in 2022, continues over the coming years.” Over the past three years to March 2023, the government has repaid US$ 2.9 billion in bonds and has reduced its loan balance with Emirates NBD by 30% over that period; loans from this bank account for 44% of the government’s gross debt, with loans from Abu Dhabi and the Central Bank accounting for 30% of the total. Despite a declining government debt burden, its public sector debt is at 100% of GDP.

Yesterday, it was announced that Micky Jagtiani, the founder of the retailer Landmark Group, had passed away at the age of seventy. He set up the company fifty years ago in Bahrain and was responsible for turning it into one of the largest retail and hospitality conglomerates in the MENA and India. The Group operates more than 2.2k outlets, encompassing more than 2.7 million sq mt, across twenty-two countries and employs 50k staff. The company’s brands, include Centrepoint, Babyshop, Splash, Lifestyle, Home Centre, Shoemart and Emax, and includes a total warehouse space of more than 9.3 million sq ft. He was the third-richest businessman in the UAE and was ranked the 511th wealthiest person in the world on the latest Forbes’ 37th magazine’s annual world’s billionaires list.

Latest data from the Central Bank indicates that the assets of UAE-based Sharia-compliant banks grew 6.5%, on the year, in February to US$ 165.6 billion – and 1.7% (US$ 2.9 billion) on the month. There were also improvements in deposits, credit and total Islamic bank investments, with annual increases of 3.9% to US$ 119.9 billion, 3.0% to US$ 108.1 billion, and 20.7% to US$ 29.8 billion respectively.

This week, the UAE Central Bank has used its powers to remove the Board of an unnamed insurance company, because of regulatory violations, replacing them by a temporary committee of experts for six months. The sanction was in line with Article 41 of Federal Law No (6) of 2007 on the Regulation of Insurance Operations, with the regulator noting that “the committee will carry out business and dispositions on behalf of the company in accordance with its mandate.” Last December, it issued new guidelines for licensed financial institutions operating in the insurance sector, including discussions on money-laundering and financing of terrorism risks relevant to life insurance and other investment-related insurance products, and how insurance operators can identify, assess, manage and mitigate them.

Fitch Ratings confirmed that Islamic banking grew at a faster rate last year than conventional, driven by growing investor demand for Islamic products and deep distribution networks; whilst “other” banks grew 3.0% in 2022, Islamic banking roared in 8.0% higher. The report also noted that much of the same will happen this year, as high oil prices and solid economic conditions will continue to support UAE Islamic banks’ credit fundamentals. Another selling point is that Islamic banks have a product offering, almost on par with conventional banks, but on top of that they can offer Islamic banking to those who require Sharia-compliant products. Furthermore, Islamic banks have a higher financing/deposits ratio, at 91%, and have more of their total funding, at 86%, from customers’ deposits. Meanwhile S&P expects a similar 10% 2023 growth in the global Islamic finance industry, mainly led by GCC countries, with Moody’s adding that demand for Sharia-compliant financing is set to outpace conventional funding, driven by strong regional growth and higher energy prices.

This week witnessed the opening of ‘The House’, the new permanent hub for HBS alumni worldwide. The Harvard Business School Club of the Gulf Cooperation Council (GCC) was officially inaugurated by HE Abdullah bin Touq Al Marri, Minister of Economy. “The House” will serve as a hub for over 400k Harvard Business School alumni worldwide, including the 1.4k alumni in the region.

This week saw Majid Al Futtaim Holding raise US$ 500 million, via a green Sukuk – its fourth such issue over the past four years as one of Dubai’s biggest private sector companies, like others, continues to diversify its funding base. The ten-year Sharia-compliant issuance is part of MAF’s US$ 2 billion financing programme, in line with the UAE Net Zero by 2050 strategic initiative. The money raised will be used to refinance an old US$ 800 million bond. Its chief executive, Ahmed Ismail, noted that “the issuance of today’s green Sukuk is a testament of the global investment community’s continued confidence and robust support in our company, the sustainability   of our debt portfolio and the inherent strength of our long-term strategic focus.” One of the reasons why companies are favouring green financing is to be in a better position to meet their net-zero commitments. The company remains on track to meet its target of having a positive water and energy footprint by 2040 and eliminating single-use plastic in all its operations by 2025.

DP World announced it has completed its US$ 260 million Centerm Expansion Project in Vancouver, Canada’s global gateway to over one hundred and seventy trading economies that seeks a 60% increase throughput, and position British Columbia as a leader in sustainable trade. This latest expansion sees the terminal being able to handle 1.5 million TEUs – an increase of 66.7%. DP World Vancouver handles an impressive third of the country’s trade in goods outside of North America, equating to a value of US$ 305 billion in goods, whilst generating US$ 11.9 billion of Canada’s GDP and 115.3k jobs.

Emirates Central Cooling Systems Corporation has extended its already impressive portfolio by adding the right to operate a further five district cooling units of Dubai International Airport, following a US$ 300 million agreement. Empower confirmed the acquisition, with a total of 110k refrigeration tonnes, from Dubai Aviation City Corporation, in a notification to DFM last Friday. Its impressive portfolio includes the DIFC, DWTC, Dubai Healthcare City, Meydan City, Dubai Studio City, Dubai Maritime City, Dubai Land, Palm Jumeirah, JBR, Bluewaters Island and Business Bay. The twenty-year old company, a JV between DEWA and Emirates Power Investment of Dubai Holding, serves more than 110k corporate and individual customers in more than 1.4k buildings, with a connected capacity of about 1.4 million refrigeration tonnes and a contracted capacity of 1.5 million refrigeration tonnes; last November, it sold two billion shares (equating to 20% of its share capital), through an IPO on the DFM.

The DFM opened on Monday, 22 May 2023, 38 points (1.1%) lower the previous fortnight, shed 4 points (0.1%) to close the week on 3,541, by 26 May. Emaar Properties, US$ 0.05 higher the previous three weeks, lost US$ 0.07 to close the week on US$ 1.60. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.68, US$ 3.77, US$ 1.46, and US$ 0.39 and closed on US$ 0.67, US$ 3.72, US$ 1.41 and US$ 0.39. On 26 May, trading was at 142 million shares, with a value of US$ 96 million, compared to 89 million shares, with a value of US$ 47 million, on 19 May 2023.

By Friday, 26 May 2023, Brent, US$ 1.62 higher (2.2%) the previous week, gained US$ 1.42 (1.9%) to close on US$ 77.18.  Gold, US$ 35 (2.2%) lower the previous fortnight, shed US$ 34 (1.7%) to US$ 1,946 on 26 May 2023.

Oil prices fell yesterday on the back of increased concerns the US debt ceiling impasse and as Russia played down the chances of further Opec+ production cuts. The benchmark for 67% of the world’s oil, Brent, was trading at US$ 76.95 in late Thursday afternoon trading. The US is five days away from a potential debt default and the ramifications of this happening would see the US economy in freefall, whilst shockwaves will be felt across the world. Brent has lost about 10% of its value YTD amid demand concerns and a regional banking crisis in the US, which spooked financial markets. Last week, US stockpile fell by 12.5 million barrels, whilst total petroleum stocks dipped by 2.1 million barrels.

Bernard Arnault has probably had better Tuesdays because his LVMH shares fell by over 5.0% and his personal wealth dipped to US$ 191.6 billion on the day. With mounting concerns on the state of the weakening US economy – and the subsequent slowing demand for luxury goods –US$ 30.0 billion was erased from the market value of European luxury shares. However, the founder of LVMH, renowned for its prestigious brands such as Louis Vuitton, Moet & Chandon and Christian Dior, had witnessed his wealth surge throughout 2023 as share prices of European luxury companies soared – and prior to Tuesday’s slump, he had accrued an additional US$ 29.5 billion this year alone, as its share value jumped 23.0%. However, he still remains the richest person – still US$ 11.4 billion ahead of Tesla Inc.’s Elon Musk, the world’s second-richest person.

Two years after it lost its bid to Elon Musk’s SpaceX, NASA has awarded Jeff Bezos’ Blue Origin US$ 3.4 billion to build a spacecraft to fly astronauts to and from the moon’s surface; it beat a rival bid from defence contractor Dynetics, including Northrop Grumman Corp. The 16 mt Blue Moon lander will be built, with help from Lockheed Martin Corp, Boeing Co, software firm Draper and robotics firm Astrobotic. Blue Origin confirmed that it will be investing “well north” of the US$ 3.4 billion figure to develop the spacecraft, with NASA indicating that it selected Blue Origin’s proposal for its lower price, extra lander capabilities and a plan to execute two test landing missions on the moon in 2024 and 2025, at the company’s expense.

Last year, Virgin Orbit was worth US$ 3.7 billion when it debuted on Nasdaq New York. This week, the rocket company, founded by British billionaire Richard Branson,  permanently ceased operations, just months after a major mission failure, and having sold its assets for a paltry US$ 36 million. Rival firm Rocket Lab acquired Virgin Orbit’s headquarters rocket factory and equipment for US$ 16.1 million, aerospace firm Stratolaunch paid US$ 17 million for its converted Boeing 747, whilst space company, Launcher Inc, bought Virgin Orbit’s launch site and lease in the Mojave Desert for US$ 2.7 million. The California-based firm filed for Chapter 11 bankruptcy protection in the US in early April, just weeks after the company paused operations after running short of finances. In January, Virgin Orbit failed in its  attempt to be the first ever satellite mission launched from UK soil which ended any hope of the UK becoming a global player in space exploration, including  manufacturing satellites to building rockets and creating new spaceports.

Ireland’s Data Protection Commissioner has fined Meta a massive US$ 1.3 billion for continuing to transfer data beyond a 2020 EU court ruling that invalidated an EU-US data transfer pact. The record fine – which surpassed the US$ 820 million 2020 penalty handed out by Luxembourg on Amazon – highlighted Meta’s handling of user information; it was also given five months to stop transferring users’ data to the United States. The DPC recently noted that EU and US officials hoped that the new data protection framework – agreed by Brussels and Washington in March 2022 – may be ready by July. The Irish regulator, which has now fined Meta a total of US$ 2.8 billion for breaches under the bloc’s General Data Protection Regulations, introduced in 2018, also commented that it did not consider fining Meta in this case, but with four other EU supervising authorities disagreeing, the record fine was added after a ruling by the European Data Protection Board.

In 2020, Meta acquired animated-gif search engine Giphy in a US$ 400 million deal – now it has been forced to sell the company to Shutterstock for US$ 53 million. Last year, the UK’s Competition and Markets Authority reissued an order to sell Giphy on competition grounds, especially in the social media and advertising fields, after originally ordering the sale in November 2021. Giphy is the main supplier of animated gifs to social networks such as Snapchat, TikTok and Twitter, and part of the deal will still allow Meta platforms Facebook, Instagram and WhatsApp access to Giphy’s content. It is estimated that every day, it receives more than 1.3 billion search queries and sees various bits of its content shown a total of fifteen billion times.

Ryanair has announced its first profit, at US$ 1.55 billion – since Covid decimated air travel -driven by a marked rebound in ticket prices, (with average prices 50% higher to US$ 45), and passenger numbers – up 74% to 168.6 million. The immediate future is bullish but with a caveat that fuel prices are set to rise, reducing future margins. This summer, the carrier will operate 3k flights every day, with CEO Michael O’Leary commenting that despite the high fuel costs, he was “cautiously optimistic” that this would be covered by higher revenues, delivering a “modest year-on-year profit increase”, and that this summer, demand is “robust and peak summer 2023 fares are trending ahead of last year”. Meanwhile, EasyJet came out with a H1 loss to March of US$ 510 million, but that the business was entering the summer “with confidence”, having flown more than thirty-three million customers – up 41% compared with a year earlier; over that period average ticket prices rose 24% to US$ 76.

This week, China has announced that products made by US memory chip giant Micron Technology are a national security risk and has meant that firm’s products will be banned from key infrastructure projects in China. With tensions between the two super-powers deteriorating by the day, it seems that the row over technology crucial to economies around the world is ramping up tensions, with this latest episode being China’s first major move against a US chip maker. The Biden administration has imposed a series of measures against Beijing’s chip making industry and has invested billions of dollars to boost America’s semiconductor sector. Now the Cyberspace Administration of China has posted that “the review found that Micron’s products have serious network security risks, which pose significant security risks to China’s critical information infrastructure supply chain, affecting China’s national security.” China is a key market for Micron and generated around 10% of its full-year sales. In 2022, Micron reported total revenue of US$ 30.7 billion, of which US$ 3.3 billion came from mainland China. It also has manufacturing facilities in the country. Last week, the company said it would invest around US$3.6 billion to develop technology in Japan.

A multi-billion-dollar agreement between Apple and Broadcom will see both US companies using more locally made ,parts when developing components for 5G devices that will be designed and manufactured in the US. This is part of Apple’s strategy, launched in 2021, to invest US$ 430 billion in the local economy, and comes at a time when a tech industry trade row is blowing up between the world’s two superpowers – the US and China. The Biden government has introduced several measures against the Chinese chip-making industry, as well as well as investing billions of dollars to boost its  semiconductor sector. In recent times, it has been seen that Apple – and other tech companies – have been moving some of its supply chains from China to the likes of India and Vietnam, as well as sourcing semiconductors from a factory being built in the Arizona by Taiwanese chipmaking giant TSMC. Last year, Apple also announced plans to make the iPhone 14 in India, in an attempt to diversify manufacturing outside of China.

The Hiroshima G7 leaders’ meeting, which ended last Saturday, a new initiative to counter economic coercion was agreed, with the meeting also pledging action to ensure that actors attempting to weaponise economic dependence would fail and face consequences. Having noted “the world has encountered a disturbing rise in incidents of economic coercion that seek to exploit economic vulnerabilities,” it also affirmed the Coordination Platform on Economic Coercion initiative. In the past, certain countries have used its economic power in political disputes, with the most notable being two years ago when Australia started asking China about its human rights record and its Covid protocol. China retaliated by banning or increasing duty on several Australian products, including coal, timber lobsters, wine and barley.  The leaders also agreed to deepen cooperation on hardening supply chains and enhance cooperation in information sharing to establish new standards for next-generation technologies, including AI.

After only acquiring failed US lender First Republic Bank last month, JP Morgan Chase is cutting around 1k jobs, equating to 15% of its workforce. The Wall Street giant confirmed that the affected employees will receive pay and benefits for sixty days, along with a package which includes a lump sum payment and other benefits. Earlier in the month, the buyer confirmed that it would be paying US$ 10.6 billion to take over the troubled bank – the fourteenth biggest lender in the country – valued at US$ 20.0 billion at the beginning of April; during that month there was a run on the bank that saw customers, increasingly worried about the state of the US banking sector, and the collapse of several banks earlier in the year, withdraw more than US$ 100 billion in deposits, This bank failure, the second largest in US history, reopened for business in eight states as branches of JP Morgan Chase Bank.

Also this week, First Citizens, which bought the US unit of Silicon Valley Bank, announced five hundred job cuts, equating to 3% of the workforce. All seventeen former SVB branches opened under the First Citizens brand. Thought to be the country’s biggest family-controlled family bank, SVB’s UK operations were bought, for a nominal US$ 1, by HSBC in a deal led by the UK government and the BoE. Earlier in May, HSBC confirmed its profits had got a US$ 1.5 billion boost from the takeover!

It seems that recent remarks by Federal Reserve Chairman, Jerome Powell point to a pause in rate hikes in June, despite some officials opining the opposite view. He commented that “we’ve come a long way in policy tightening and the stance of policy is restrictive and we face uncertainty about the lagged effects of our tightening so far and about the extent of credit tightening from recent banking stresses,” and “having come this far, we can afford to look at the data and the evolving outlook to make careful assessments.” Even though the Fed has raised rates by 5.0% in a little over a year, inflation seems yet to be beaten and with prices not cooling as fast as many would hope, rate hikes should continue.

Australia is reeling from the fact that PwC has used confidential government information to help its global clients avoid tax.   It would be naïve to think that this has not occurred before either in Australia or any other country where it is common for governments to pay leading accounting firms to help establish new tax laws. It is alleged that PwC collected information from the government when the firm was advising it on developing international tax avoidance laws – to help global clients avoid tax. It does seem a little sanctimonious to see rival firm KPMG sending an email to its staff reminding its partners and staff to act “ethically and in the public interest”.  (This is the same firm that was involved in a cheating scandal where more than 1.1k staff were accused of sharing test answers from 2016-2020 in a scheme involving people “at all levels of the firm”: the tests were designed to ensure partners and staff act with integrity!)  On Wednesday, Treasury called in the federal police to investigate the leaking of confidential tax briefings by PwC and particularly its former head of international tax Peter Collins. The government is alleging that this former employee “improperly used confidential Commonwealth information”, with emails tabled in parliament by the Tax Practitioners Board highlighting “the significant extent of the unauthorised disclosure of confidential Commonwealth information and the wide range of individuals within PwC who were directly and indirectly privy to the confidential information”. There is no doubt that the PwC tax leak is a serious abuse of confidence and trust with the federal government, with an estimated fifty-three current and former PwC partners and staff having received emails revealing confidential tax information. PwC could do little else but to agree with the government’s request to “stand down” any staff who knew about Treasury tax leaks from working on any existing or future government contracts.

It is reported that PwC collects at least US$ 215 million for government consulting work carried out in Canberra and that the scandal first came to light in January. It appears that PwC did not report on the seriousness of the problem and did not advise government that the breach was broader than what was being publicly reported until 02 May. Currently, only one person, Peter Collins, is being prosecuted in this case and the only sanction could well be that PwC will only have to conduct more training for its partners and staff.

New evidence has been released about how interest rates were rigged during the 2008 GFC, and that UK and US regulators were told of a state-led drive to “rig” interest rates but covered it up. Documents suggest lenders sharply dropped their interest-rate estimates after pressure from central banks. It seems that the UK government and the BoE were involved in the manipulation of lowering interest rates but that it was part of a broader, international drive not just by the BoE but by the likes of the Banque de France, the ECB, Banca d’Italia, Banco de Espana and the Federal Reserve Bank intervening on a large scale in the setting of Libor and Euribor. The aim of the exercise was to keep rates low as this was meant to lead to investor confidence – and the higher the rate, the more doubts the market had about the viability of that bank. It seems that, in November 2010, the FBI and the UK financial regulator were made aware of these illegal developments but decided to remain mum.

Latest data sees Germany slipping into recession in Q1, not helped by persistent inflation, still hovering around the 7.2% mark, (well above the euro area’s average), and the impact of Russian gas supplies drying up. Europe’s largest economy contracted by 0.3% last quarter, and with a 0.5% fall in Q4 2022 GDP, the country goes into technical recession. Household spending was 1.2% lower last quarter, driven by higher prices and falling consumer spend, whilst industry has suffered because if the higher energy prices. What saved the country from even worse economic news were a mild European winter and the reopening of China’s economy. More of the same is on the horizon with the IMF predicting that Germany will be the weakest of the world’s advanced economies, contracting by 0.1% this year.

The IMF has again shown that it could be the world’s worst forecaster especially when it comes to the UK economy. Only last month, it expected that the economy would contract by 0.3% and has changed its tack by saying that the economy will now grow 0.4% in 2023. It indicated that growth would be helped by “resilient demand”, improved financial stability and falling energy prices, but noted that inflation “remains stubbornly high” and that higher interest rates will need to remain in place if it is to be brought down. The IMF report noted that the risks for the UK economy were “considerable”, with the biggest danger coming from “greater-than-anticipated persistence in price- and wage-setting”, which would keep inflation higher for longer, but congratulated the Sunak government for taking “decisive and responsible steps in recent months”. There was another note of caution that the outlook for growth “remains subdued”, with growth rates of 1%, 2% and 2% for the years 2024-2026, and that the BoE’s 2% inflation target will not be met for at least another two years. With global supply chain problems apparently easing, sticky inflation, and especially food price inflation, is an ongoing problem for the BoE, who eighteen months ago were doing very little to tackle the growing inflation level by saying it was only ‘transient’ and would soon go away. The vibes coming out of the UK are not good and, with a procrastinating BoE and a weak government, it seems that tough times are still ahead for the population. The people expect positive action and are growing Tired of Waiting!  

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