Corporate financial health to worsen in 2023

Corporate financial health will worsen across the globe this year, failing to gain respite from signs that inflation has peaked and hopes for an economic soft landing, asset manager Janus Henderson said in a report released on Monday.

Its global credit risk monitor's indicators - debt loads, access to capital markets, cash flow and earnings - all flashed red in the fourth quarter of 2022, signalling caution to investors.

The firm, which manages around US$275 billion in assets, expects earnings growth to weaken in 2023, with energy and input costs eroding companies' cash flows.

While companies' financial metrics have been resilient so far, the second half of 2023 is when corporate margins will decline as weaker consumer confidence and higher interest rates bite, the study found.

All companies it tracks across global regions had flat or negative earnings forecast revisions for this year. Earnings are then expected to rebound in 2024, particularly in emerging markets.

Although an economic soft landing looks more likely, the asset manager remains cautious given the retreat in inflation is too late to prevent further deterioration in the credit cycle.

It said economic activity data point to a recession and government bond yield curves moved deeper into inversion territory - often a reliable signal of an upcoming recession - while central banks continue to withdraw liquidity and inflation-adjusted rates spikes translate into high borrowing costs.

More positively, a buoyant market for debt sales signalled strong demand for credit, though that may not last.

The risk premium on euro and US investment-grade corporate bonds has fallen some 19 basis points since the start of the year. The cost of insuring exposure to junk debt has fallen by 86 bps, according to S&P Global Market Intelligence.

"Optimism in a central bank retreat has allowed markets to reopen, but this too may prove fleeting," Jim Cielinski, the firm’s global head of fixed income, said.

"We are not out of the woods yet, although the decline in inflation seen in the last three months is a critical prerequisite to the elusive soft landing that investors cherish."

NATO using Ukrainian blood to fight Russia

The West, with the United States in particular, has been shipping billions of dollars worth weapons to Ukraine. As the Ukraine war drags on, more sophisticated weapons are being delivered in an attempt to prolong the war. At the same time, Western governments have been very wary of direct involvement in confronting Russia on the battlefield. 

The most that the West has done is impose round after round of sanctions on Moscow. However, despite repeated Ukrainian appeals, the European Union says there are no rigid timelines for Kyiv to become a member. "There are no rigid timelines, but there are goals that you have to reach," European Commission President Ursula von der Leyen said during an EU-Ukraine summit in Kyiv attended by 15 of the 27-nation bloc's commissioners.

"Ukraine and the EU, we are family," European Council President Charles Michel claimed. "The future of Ukraine is within the European Union," he chipped in, while also refusing to comment about any timeline. The EU has declined to offer a fast-track membership, with the bloc's officials citing several entry requirements such as political and economic stability.

The EU is saying we have goals but we don't have timelines. If we look at that in a wider context and the promises the EU gave to Turkey about its accession which Ankara has not seen for decades now, this process could take many years, potentially a decade judging by Croatia?, the last country that gained membership. It's a similar approach that the US-led NATO military alliance has taken toward Kyiv. 

This effectively means there is no real intention on the EU or NATO side apart from keeping Ukrainians to continue fighting, dying, and suffering as well as prolonging the war to serve the purposes of US hegemony. 

Weapons have been pouring into Ukraine with one NATO member trying to outbid the others in sending its most advanced military equipment. The Western military-industrial complex has been making extremely lucrative profits in the process. 

Prolonging the war, Ukrainian blood as well as rising inflation rate in Europe with consumers struggling to survive as a result. 

Ukrainian President Volodymyr Zelensky also used the summit to call on his Western allies to send even more sophisticated weapons to help repel Russian forces in the country's east.

This is the same region in the country that has witnessed deadly fighting between ethnic Russians and Ukrainian forces since 2014, killing at least 14,000 people until Russia launched what it called a "special military operation".

But can these more advanced weapons help Ukrainian forces? More recently that has come under the spotlight, with NATO members themselves divided on the issue. Some NATO members have started to question whether supporting Ukraine is going ahead as it had planned. 

Reports have emerged that say the tanks being sent to Ukraine will take months to arrive at the frontline, perhaps until the end of May this year. This is while Russia has been taking large chunks of the Eastern Donbas region. 

There is also an expectation among experts that Russia will launch a massive operation in the coming weeks or months, should the war continue, and consolidate its forces in the towns and villages there. That is expected to happen before any NATO tanks even reach the frontline in the country's east.

Russia can mobilize a large number of soldiers and military equipment. That is why NATO at some point will have to enter peace negotiations with Russia. But the pro-war camp led by the hawks in Washington and others in Europe have been advocating for more escalation. 

This comes even though it is the Ukrainians who are suffering the most.

The European Commission president has since taken down a video that revealed Ukraine has lost 100,000 soldiers in ten months. Some say that is a conservative figure when you factor in all the soldiers that are missing and whose mothers and wives are desperately searching for them.

Even the 100,000 figure is horrifyingly large. Some pundits following the war closely have suggested the actual death toll among the Ukrainian armed forces is around a quarter of a million.

Most Western media reporters are stationed in western Ukraine. Research by other journalists who have been dispatched to the flashpoint eastern part of the country on the frontline where the fighting is taking place shows these are realistic figures.

A few months ago, Moscow said it had lost 6,000 of its servicemen. That death toll could be higher but analysts say it will never come anywhere close to the Ukrainian fatalities, who are dying in much higher numbers.

This is not taking into account the pro-Russian forces in the Donbas as well as private military fighters, but without doubt, the Russians have overwhelmingly artillery superiority.

Many journalists believe the figures on the Ukrainian side of 100,000 are far more accurate.

What the U.S. wants is to keep Ukrainians fighting Russia until the last Ukrainian. It doesn't make any sense for Ukraine to continue this war but the West is egging it on with repeated military aid packages and false promises of accession to NATO and the EU.

Western media has also played a major role in trying to shape public opinion.With every war, there is a level of propaganda and Ukraine is no exception.

Noam Chomsky, and John Pilger among a few other veteran war reporters who covered Vietnam say they have never seen such levels of Western mainstream propaganda when it comes to the Ukraine conflict. 

With all Western reporters in the west of the country, there is little coverage of the deaths and terror in the flashpoint east. 

Most civilians in the eastern Donbas part of Ukraine voted in a referendum to be a part of Russia. 

So a peace solution that can be found without pouring in so many weapons, but the US and some of its Western allies are not satisfied with that scenario and want to prolong this conflict as long as possible. 

Even before the war erupted, US officials said they wanted to use Ukraine to inflict a geopolitical defeat on Russia. 

Does it come as a surprise that before the US and NATO refused to entertain the Kremlin's proposal for security guarantees over NATO's expansion toward Russian borders that US and UK officials invested shares in their respective country's arms manufacturing companies?

In essence, this war benefits the US establishment. Unfortunately, Ukraine is being used as yet another US proxy that is suffering from Washington's foreign military adventurism.

This appears to be the new strategy of the US following the death of its soldiers in Iraq and Afghanistan. 

Let other countries suffer, its civilians suffer and its soldiers die instead of American soldiers, while at the same time serving multiple US foreign interests. As for the EU in this current day and age, it seems to be taking its orders directly from Washington. 

 

Iran: Supreme Leader pardons tens of thousands of prisoners

Iran's supreme leader has pardoned tens of thousands of prisoners including some arrested in recent anti-government protests, state news agency IRNA reported on Sunday, after a deadly state crackdown helped quell the nationwide unrest.

However, the pardon approved by Ayatollah Ali Khamenei came with conditions, according to details announced in state media reports, which said the measure would not apply to any of the numerous dual nationals held in Iran.

State news agency IRNA said those accused of corruption on earth - a capital charge brought against some protesters, four of whom have been executed - would also not be pardoned.

Neither would it apply to those charged with spying for foreign agencies or those affiliated with groups hostile to the Islamic Republic, state media reported.

Iran was swept by protests following the death of a young Iranian Kurdish woman in the custody of the country's morality police last September. Iranians from all walks of life took part, marking one of the boldest challenges to the Islamic Republic since the 1979 revolution.

According to the HRANA activist news agency, about 20,000 people have been arrested in connection with the protests, which the authorities accused Iran's foreign enemies of fomenting.

Rights groups say over 500 have been killed in the crackdown, including 70 minors. At least four people have been hanged, according to the Iranian judiciary.

In a letter to Khamenei requesting the pardon, judiciary head Gholamhossein Mohseni Ejei said, "During recent events, a number of people, especially young people, committed wrong actions and crimes as a result of the indoctrination and propaganda of the enemy.

Protests have slowed considerably since the hangings began.

"Since the foreign enemies and anti-revolutionary currents' plans have been foiled, many of these youth now regret their actions," Ejei wrote.

Khamenei approved the pardons in honour of the anniversary of the 1979 Islamic revolution.

It would not apply to those "facing charges of spying for foreign agencies, having direct contact with foreign agents, committing intentional murder and injury, (and) committing destruction and arson of state property".

"Naturally, those who do not express regret for their activities and give a written commitment for not repeating those activities, will not be pardoned," deputy judiciary chief Sadeq Rahimi said, state media reported.

The Norway-based Iran Human Rights group said this week that at least 100 detained protesters faced possible death sentences.

Amnesty International has criticized Iranian authorities for what it called sham trials designed to intimidate those participating in the popular uprising that has rocked Iran.

 

Iran: Refining project inaugurated in Hormozgan province

Iranian Oil Minister Javad Oji has inaugurated the bitumen production and storage unit of Jey Oil Refining Company in the southern Hormozgan province on Thursday.

The mentioned unit with the annual production capacity of 600,000 tons and storage of 22,000 tons of bitumen was established with an investment of about US$20 million.

This plan aims to expand the development of production and storage infrastructures in the country's key export point, Bandar Abbas being the largest export port of oil products in the country and consequently increase the share of exports and create a bitumen production and supply base in the south of the country.

The operation of the plan to improve the quality of heavy products of Bandar Abbas Refining Company in Hormozgan was started in the presence of the minister.

Despite all the external challenges like the coronavirus pandemic and the US sanctions, the Iranian oil and gas sector has been developing at a fast pace and the country is passing new milestones in this industry every day.

Various sectors of Iran’s oil and gas industry including exploration, production, processing, and distribution are all among the world’s top charts and the country is taking new steps to develop the industry even further.

Among different sectors of this industry, refining is a major one being seriously paid attention for development.

 

Sanctions could cause energy shortages, warns Saudi energy minister

Saudi Energy Minister, Prince Abdulaziz bin Salman warned on Saturday Western sanctions against Russia could result in a shortage of energy supplies in future.

In answer to a question over how trade measures would affect the energy market, Prince Abdulaziz told an industry conference in Riyadh, "All of those so-called sanctions, embargoes, lack of investments, they will convolute into one thing and one thing only, a lack of energy supplies of all kinds when they are most needed".

The prince also said Saudi Arabia was working to send Liquefied Petroleum Gas (LPG) to Ukraine. LPG is most commonly used as a cooking fuel and in heating.

The European Union has imposed a series of sanctions against Russia, reducing Russian energy exports, and other Western powers have also imposed measures as they seek to further limit Moscow's ability to fund its war in Ukraine.

Asked what lessons had been learnt from energy market dynamics in 2022, Prince Abdulaziz said the most important one was for the rest of the world to trust OPEC Plus.

"We are a responsible group of countries, we do take policy issues relevant to energy and oil markets in a total silo and we don't engage ourselves in political issues," the prince said.

OPEC Plus, an alliance that includes members of the Organization of the Petroleum Exporting Countries (OPEC) and others including Russia, agreed last year to cut its production target by 2 million barrels per day, about 2% of world demand, from November 2022 until the end of 2023 to support the market.

An OPEC Plus panel that met last Wednesday endorsed the decision and the main message throughout the meeting was that the group would stay the course until the end of the agreement.

India: Inequality of growth story

Despite being its last full budget before the general elections in 2024, Narendra Modi's government is expected to shun populism in favor of fiscal discipline. However, the uneven nature of India's post-pandemic recovery calls for heightened support to the most vulnerable sections of society.

With a third of the world hovering on the brink of a recession after two pandemic years, India's economy remains a comparatively bright spot in 2023.

GDP targets for the year have been moderated slightly, but India is expected to remain the fastest-growing major economy in the world for a second year. Growth is likely to be in the range of 65 to 6.5%, which is impressive by any measure.

Additionally, inflation is coming off, energy prices have cooled off, the country continues to receive strong investment flows and consumer spending is inching up.

India is also expectedly benefiting from the 'China-plus-one' strategy of global manufacturing, with the likes of Apple looking to scale up capacity in the country as it diversifies supply chains away from China.

At the recently-concluded World Economic Forum in Davos, the one-line message from Gita Gopinath, deputy managing director at IMF (International Monetary Fund), to politicians was to use "fiscal policy to provide support to the most vulnerable in society".

Despite impressive headline GDP forecasts, unemployment in India remains high - at over 10% in cities, according to December 2022 data from the Centre for Monitoring the Indian Economy. And inequality has worsened.

Recent findings by Oxfam, the British charity, that India's top 1% owned 40% of its wealth have been subject to a great deal of scrutiny, with many pointing to flaws in its calculation methodology.

But a raft of other data sets - such as shrinking demand for affordable homes, greater demand for luxury cars vis-vis two wheelers, or for premium consumer goods over cheaper alternatives — points to a K-shaped recovery post pandemic, where the rich have become wealthier, while the poor are worse off.

The BBC traveled across numerous villages in West Bengal's Purulia district where people are caught in a political crossfire between the federal and state government. Approximately US$330 million in wages under the government's rural jobs guarantee program, a crucial social buffer, have been delayed for more than a year.

Sundara and Aditya Sardar, a couple who spent four months digging a pond outside their village under the jobs scheme — Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), told the BBC they'd run up debts to pay for food because of the wage delays and taken their son out of school.

"The central government has blocked off payments to 10 million workers in West Bengal for over a year. In times of economic distress and high unemployment, this is inhumane and, as the Supreme Court has said in a MGNREGS case ruling on delayed payments, it is forced labor," said Nikhil Dey, an activist.

These delays, while most acute in West Bengal, aren't limited to the state alone. In all, the government owes over US$500 millio in unpaid dues to workers under the scheme across the country.

Economist Jean Dreze blames this situation on the government's bid to contain expenditure across social security schemes and allow the vicious cycle of annual under-allocation and delays in wages to continue, particularly for MGNREGS.

"There was a time when the expenditure on the jobs program had risen to 1% of GDP. It is now less than half a percent. I would be quite happy if it came back to 1% in this budget, with much bigger efforts to curb corruption in the scheme," said Dreze.

Outlays to the rural jobs scheme shrunk last year and lower spendings were budgeted for food and fertilizer subsidies, although supplementary allocations were made to extend the Covid-era emergency support schemes and cushion the impact of global geopolitical shocks.

Given the Modi government's precarious fiscal position, the finance minister has a tough balancing act to do; between prioritizing social protection to the poor and growth-supportive capital expenditure on one hand and reducing the budget deficit on the other.

India's budgeted fiscal deficit — the gap between what the government earns and spends — is at 6.4%, as opposed to an average of 4% to 4.5% over the last decade.

And with the government's gross indebtedness doubling over the last four years, subsidies on food and fertilizers could be cut by a quarter, a Reuters poll of economists found. The government has already discontinued a Covid-era free food program.

A widening current account deficit - the difference between what the government earns from exports and spends on imports - poses another significant challenge.

"India's economy is affected by external demand, sentiment of global investors, and regional trade dynamics. These are not flashing bright green right now," DBS Group Research chief economist Taimur Baig and data analyst Daisy Sharma said in a recent report.

Demand for Indian exports is likely to falter as the West enters a recession. Meanwhile, tighter financial conditions domestically are expected to keep domestic demand muted. India's central bank is broadly expected to hike rates further in February before pausing for the rest of the year.

Modi's government faces formidable economic challenges this year despite India's outperformance globally. And it will need to undertake continued structural reforms beyond budget announcements to make increasingly scarce money work better.

Pakistan Stock Exchange witnesses 39.8%WoW decline in average daily trading volume

The week ended on February 03, 2023 remained volatile  due to the ongoing talks with IMF to ensure its prerequisite conditions are implemented which includes high circular debt which is hovering around PKR2.5 trillion for power sector and PKR1.6 trillion for Gas sector while restricting subsidies only to vulnerable domestic consumers. Furthermore the lender has also demanded political consensus given that opposition might create hurdles in the way of implementing tough economic decisions.

The local currency has dropped significantly after it was left to market forces, depreciating to PKR276/USD.

Participation in the market declined, with daily volumes averaging at 130.78 million shares during the week, as compared to 217.20 million shares in the prior week depicting a loss of 39.8%WoW.

Other major news flows during the week included: 1) US Fed raising rates a quarter point, 2) SBP reserves plunging to US$3.07 billion, 3) trade deficit for first seven months of FY23 shrinking 31.97% to US$19.632YoY, 4) IMF identifying PKR2 trillion hole in budget estimates, 5) CPI Inflation for January 2023 rising to 27.6% and 6) LPG prices hitting historic high of PKR300/kg.

The top performing sectors were; i) Glass and Ceramics (+4.4%WoW), ii) Pharmaceuticals (+3.9%WoW), and iii) Woolen (+3.6%WoW), while the least favorite sectors were: Miscellaneous, Textile Weaving, and Tobacco.

Stock-wise, top performers were: GATM, ABOT, GHGL, COLG, and KTML, while laggards were: PSEL, GADT, SRVI, PPL, and PSMC.

Flow wise, individuals were the major buyers with net buy of US$0.32 million, followed by Banks/DFI with net buy of US$0.13 million), while foreign investors were major sellers, with a net sell of US$0.75 million.

The market is expected to remain under pressure in the near future mainly due to the concerns stemming on political and economic fronts, expected to keep the market movements in check. 

Any news flow regarding foreign inflows, whether from the IMF or other bilateral and multilateral sources, would support the market trajectory. However, the government would have to take difficult decisions to get the IMF on board, which includes additional revenue collection of PKR600 billion and hikes in gas and electricity tariffs.

 Analysts continue to advise a cautious approach while building positions in the market.