Biden hosts German Chancellor to solicit support in Ukraine war

US President Joe Biden on Friday hosted German Chancellor Olaf Scholz at the White House, where the two leaders tried to project a united front in support for Ukraine as it enters the second year of a war against invading Russian forces.

Scholz last visited the White House in February 2022, when Russia was amassing troops along the Ukrainian border. Friday’s visit came after a year of war and as both leaders have sought to assure the Ukrainians and other allies that their respective governments will back Ukraine for as long as it takes to end the conflict.

“I want to thank you, Olaf, for your strong and steady leadership. I mean that sincerely. It’s made a world of difference,” Biden said during an Oval Office meeting. “You stepped up to provide critical military support. And I would argue, beyond the military support, the moral support you’ve given Ukrainians has been profound.”

Scholz added that it was important for Germany and the United States to aid Ukraine and “that we give the message that we will continue to do so as long as it takes.”

That message echoed what Biden has said repeatedly during the past year, including during a trip to Kyiv last month marking the anniversary of Russia’s invasion.

The two leaders did not respond to questions from reporters in the Oval Office, and they were not scheduled to hold a joint press conference that has typically accompanied foreign leader visits to the White House.

But continued support for Ukraine was likely to be at the top of the agenda for Biden and Scholz. The US and Germany, along with other Group of Seven allies, have for the past year attempted to coordinate on imposing sanctions against Russia to squeeze the Kremlin’s war effort, as well as military and economic assistance for Ukraine.

Biden and Scholz were initially not on the same page earlier this year over whether to send tanks to Ukraine, with Germany reluctant to Leopard tanks unless the US agreed to send Abrams tanks. Both countries eventually came to an agreement to provide the armored vehicles to Ukraine.

As the war enters its second year, maintaining support will be a major test for both leaders, and the US has warned that China is considering providing support to Russia in its war effort, though it has not yet done so.

Polls have shown softening support among Americans for providing additional aid to Ukraine, and US officials have deferred to Ukrainians to map out what they would accept for terms of ending the war. 

Half of respondents in a late February poll from Fox News said America should continue to back Ukraine through the end of the war, while another 46% said there should be a limited timeframe on US support.

 

Pakistan Stock Exchange average daily trading volume increases 16%WoW

The benchmark index of Pakistan Stock Exchange closed the week on March 03, 2023 at 41,337 points, depicting an increase of 1.55% over the course of the week. Participation in the market improved, with daily volumes averaging 159.76 million shares during the week, as compared to 137.89 million shares in the prior week depicting a gain of 15.9%WoW.

The local currency depreciated heavily against the US$ which lead to a negative sentiment in the market midweek. However, a positive market reaction was seen where the State Bank of Pakistan (SBP) hiked the policy rate by 300bps to 20% to fulfill the prior condition of IMF for the long awaited staff level agreement to avert sovereign default and secure the US$1.2 billion disbursement.

Foreign exchange reserves held by SBP inched up by US$556 million to US$3.81 billion as on February 24, with the import cover still remaining below a month.

Other major news flows during the week included: 1) Moody's downgrades Pakistan's rating to Caa3; changes outlook to stable from negative, 2) February 2023 CPI jumps to 31.5%, highest rate in nearly 50 years, 3) US$700 million Chinese loan lands in SBP account, 4) 8MFY23 trade deficit narrows 33.18%YoY, 5) RKR2 billion shortfall in February 2023 tax collection and 6) Money supply reaches to PKR30.68 trillion in 7MFY23.

Top performing sectors were: Miscellaneous, Commercial banks, and Woolen, while the least favorite sectors were: Tobacco, Leather and Tanneries, and Property.

Stock-wise, top performers were: PSEL, UBL, BAFL, EPCL, and MEBL, while laggards were: PGLC, SML, PAKT, SRVI, and JVDC.

Flow wise, insurance companies were the major buyers with net buy of US$10.42 million, followed by companies with net buy of US$8.15 million, while foreign investors were major sellers during the week, with a net sell of US$9.48 million.

All eyes on the Staff Level Agreement, Pakistan is in a very critical situation where delays in the 9th Review can’t be tolerated. Any news flow regarding foreign inflows, whether from the IMF or other bi-lateral and multilateral sources, would support the market.

The market may remain jittery in the near future due to higher inflation expected to be driven by hikes in gas tariff and the GST implementation starting to materialize.

The PKR continues its slide against the Greenback and as the open market rate inches upwards there is no clarity as to its limit.

With this backdrop, we continue to advocate scrips that have dollar-denominated revenue streams to hedge against the currency risk, which include the Technology and E&P sectors.

 

EPA proposes sales of higher ethanol blend gasoline

The US Environmental Protection Agency on Wednesday proposed a rule that would allow sales of gasoline with a higher ethanol blend in certain US Midwest states - a win for corn growers but a potential logistical challenge for the oil industry.

The proposal comes in response to a request from the governors of corn-producing Midwestern states including Iowa, Nebraska and Illinois, that the agency lifts an effective ban on E15, or fuel containing 15% ethanol, to lower pump prices and help farmers.

The EPA's proposal would take effect in the summer of 2024, a year later than the governors had requested.

The EPA enforces summertime regulations preventing E15 sales because of concerns it contributes to smog in hot weather. Research has shown, however, that E15 may not increase smog more than E10, which is sold year-round and contains 10% ethanol.

Proponents of the EPA's proposal say that increased E15 supply would lower pump prices by expanding the volume of available fuel, and help farmers in the meantime.

However, critics of the idea - including those in the refining industry - have voiced concerns that a piecemeal approach to augmenting E15 sales could lead to distribution challenges.

Both the biofuel and oil industries have said they would prefer a nationwide policy allowing E15.

The EPA will hold a public hearing for the proposed rule in late March or early April 2023, it said.

The American Petroleum Institute, an oil group, said major changes to the fuel infrastructure system will be needed to accomplish the governors' request, because high ethanol fuel grades require different equipment.

The API expects an additional one or two years beyond 2024 will be needed to minimize impacts to consumers, said Will Hupman, API's vice president of downstream policy.

The oil refining industry has traditionally balked at efforts to expand the ethanol market because it competes with gasoline at the pump and can be costly to blend.

The American Fuel and Petrochemical Manufacturers, an oil trade group, said late on Tuesday that implementing a new fuel blend in select states in 2024 would create issues, including leaving the Midwest region with tighter fuel supplies during the peak summer driving season.

"Not every refinery, pipeline and terminal serving the Midwest has the ability to seamlessly produce, transport and store a new blend of gasoline, and it could take years to permit and complete infrastructure projects to resolve this," said Patrick Kelly, AFPM's senior director of fuels and vehicle policy.

The rule could cost the Midwest's fuel supply chain and consumers up to US$800 million per year, Kelly added.

The biofuel industry gave a mixed response to the announcement.

The Renewable Fuels Association said it was glad to see the EPA taking action, but disappointed that it was a year later than the governors had requested.

"By law, EPA should have finalized approval of the governors' petition more than seven months ago, which would have given the marketplace more than enough time to adjust and prepare for implementation this summer," said Geoff Cooper, the RFA's chief executive.

Members of the biofuel industry say E15 saves consumers money. Drivers saved an average of 16 cents per gallon this past summer because of E15, said Growth Energy Chief Executive Emily Skor.

US President Joe Biden lifted the ban last summer to try to lower historically-high gasoline prices.

Some in the oil industry are so opposed to a piecemeal approach to E15, that in November they supported for the first time a bill to expand nationwide sales of E15.

The legislation was introduced by Senator Deb Fischer from Nebraska and Senator Amy Klobuchar from Minnesota and supported by the American Petroleum Institute.

Both oil and biofuel groups this week reiterated that a nationwide, legislative fix would be the best solution.

"A legislative approach that addresses the needs of all stakeholders would provide a more durable and less disruptive solution than creating requirements for costly new fuel blends," AFPM's Kelly said.

 

Pakistan: Takeaways from central bank briefing after 300bps hike in interest rate

The State Bank of Pakistan (SBP) on Thursday increased the benchmark policy rate by 300bps to 20%. It noted that the recent fiscal adjustments (mini-budget) and exchange rate depreciation have significantly deteriorated near-term inflation outlook. The SBP also revised its headline inflation target for FY23 to 27-29%.

It was highlighted that despite the drastic decline in current account deficit (CAD) in 7MFY23, upcoming debt repayments and a decline in financial inflows continue to exert pressure on foreign reserves and the exchange rate.

The recent fiscal adjustments i.e. hike in GST and FED, reduction in subsidies are expected to help contain the otherwise widening fiscal and primary deficits.

It is believed that after the interest rate hike decision, real interest rates have been pushed into positive territory on a forward-looking basis. This will help anchor inflation expectations and steer inflation to the medium-term target of 5 – 7% by end FY25.

The central bank also arranged a briefing and the takeaways are:

Of the US$23 billion in expected principal repayments at the start of FY23, about US$15.8 billion has been settled by: USD$9.8 billion repayments and US$6 billion rolled-over. Remaining US$7.2 Billion includes US$3 billion which is expected to be rolled-over also and US$4.3 billion, of which US$1.3 billion would be re-financed. Hence, US$ 2.9 billion in repayments are required over April-June 2023.

Pakistan has no intention of restructuring Eurobonds as all commitments are expected to be met on time with the next repayment tranche of US$1 billion due next year. Similarly, most of the external debt pertains to bilateral and multilateral borrowing which can be rolled-over. A small portion relates to commercial bank loans and the Government is already in contact with bilateral partners to secure further support.

Overall, inflationary pressures remain high across all groups following recent fiscal adjustments and depreciation of PKR. The rise in core inflation is much sharper compared to the previous episode. In particular, services core inflation (excluding house rent and transportation) has risen more sharply.

Global economic prospects have improved slightly with international commodity prices seem to be peaking. Accordingly, export values have come down. However, import volumes have fallen drastically. Pakistan’s CAD has also improved, but official FX reserves cover is still much below the adequate level. Nevertheless, the reserves position is expected to improve following conclusion of the 9th EFF review.

Demand compression measures include ongoing monetary tightening and fiscal adjustments coupled with PKR depreciation, are bringing down economic growth momentum towards sustainable levels. This is evident from the moderation seen in high frequency growth indictors, broader decline in LSMI and fall in private sector borrowing.

There have been no demands from the IMF to implement a ‘border exchange rate’. However, the IMF has recommended narrowing the difference between the inter-bank and open-market PKR/USD rates.

Current amount of outstanding OMO injections is PKR 6.5 Trillion. Its main objective is to keep short-term interest rates aligned with the policy rate.

 

Where is Pakistan heading? Revival or Devastation

In an attempt to get the IMF tranche of around US$1.2 billion released, the Government of Pakistan has imposed new taxes amounting to PKR170 billion, increased electricity and get tariffs and withdrawn certain subsidies. Added to this is persistent hike in interest rate as a measure to curb inflation. Today, the State Bank of Pakistan is scheduled to announce another hike of 200 bps on the recommendation of IMF. I am of the view that all these measures will fuel the inflation already hovering around 30% and further erode the competitiveness of Pakistani manufacturers and in no way help the country overcome Balance of payment crisis. This will necessitate Pakistan to negotiate yet another program with the lender of last resort on even more stringent conditions. I seek comments from my LinkedIn friends.

Israel: Police throws stun grenades at protesters

Israeli Police officers threw stun grenades into a crowd of protesters on Ayalon Highway in Tel Aviv early on Wednesday afternoon in an effort to disperse the protests and clear the highway.

According to The Jerusalem Post, one of the protesters was injured after a stun grenade hit him on the side of his head. According to the source, he was evacuated from the scene for medical treatment, and there is a concern that he may have lost his ear.

Protest organizers criticized the police dispersal methods, calling the system morally bankrupt and accused them of becoming a political police force.

"The commissioner should fire those responsible for the failure today," the statement read. "Throwing grenades and trampling protesters for democracy with horses is crossing the black line. Shame on the state of Israel.

"We must stop the coup d'état because if the laws of the dictatorship are passed, the violence against demonstrators will be a matter of routine, if it will be possible to demonstrate at all."

An unnamed apache pilot in reserve IDF services and now an El Al pilot, was arrested at the protests at the Kfar Hayarok junction near Ramat Hasharon. According to him and eyewitnesses, he was there as part of the demonstrations to photograph the event and had not acted out when he was taken forcefully by the police.

Israel's "national day of disruption" kicked off early on Wednesday morning as protesters demonstrated at the entrance to Jerusalem in the middle of Highway 1 shortly before 8 a.m., preventing traffic from moving.

Police were said to be working at the scene to redirect traffic and restore order and the road was reopened to traffic at 8:20 a.m.

The nationwide protests were scheduled to be held as the government's legislative committee votes to pass the second part of the judicial reform which includes the override clause that allows the government to override High Court of Justice rulings with a Knesset majority of 61 MKs.

Following a situational assessment between National Security Minister Itamar Ben-Gvir, Police Chief Kobi Shabtai and the Jerusalem and Tel Aviv district commander and deputy commander, Ben-Gvir issued a statement against the move by protesters to close roads. 

"The blocking of central roads must not be allowed, and all of the anarchists' blockades must be opened," he said. "I am in favor of democratic protest, but we will not allow civil riots and we will not allow anarchists to block major roads."

He added that he had informed police across the country to reopen roads if they are blocked by protests.

Opposition leader Yair Lapid responded to Ben-Gvir via Twitter, "The minister of TikTok and pita is confused again. The only anarchy is that of the most insane government in Israel's history.

"The demonstrators this morning are patriots and lovers of Israel who want to keep it democratic and free."

Elsewhere in the country, protesters attempted to disrupt the arrival and departure of trains at the Tel Aviv Hagana train station.

"Over the last hour, there have been a number of intentional disruptions to the closing of the doors on some trains when they stop at stations, and as a result, the trains are delayed and there are disruptions to movement and travel," Israel Railways said in a statement. "We ask all passengers to allow safe and regular journeys to continue."

Later on Wednesday morning, Ayalon Highway in Tel Aviv was closed to traffic as protesters began to block the road.

Coalition MKs and ministers were quick to criticize the actions taken, with Minister in the Welfare and Social Affairs Ministry Yoav Ben-Tzur (Shas) tweeting, "We must not allow law-breaking anarchists to shut down the country by blocking main roads and preventing citizens from getting to where they want to go. This is not a protest; this is a violation of the law."

"We must not allow law-breaking anarchists to shut down the country by blocking main roads and preventing citizens from getting to where they want to go. This is not a protest, this is a violation of the law."

UAE-India hold talks to finalize rupee dirham trade deal

The United Arab Emirates (UAE) and India are in technical discussions to finalize rupee-dirham exchange rate for trade arrangement. This was told by UAE ambassador to India, Abdulnasser Jamal Alshaali to Hindustan Times newspaper. 

“The technical conversation is ongoing. There has been an agreement to settle a certain [amount] of trade between the two countries, just not having to go through a third currency,” he said, adding the two sides are working on a remittance facility to make it "more direct and easier".

Alshaali noted that energy security is important for both countries with the UAE seeking to be part of India’s energy security.

“The fact that the strategic oil reserve has been agreed on and it’s been established and has been ongoing for quite some time, it is quite helpful and constructive, especially given the current state of affairs,” he added.

The ambassador said that India is a reliable partner for the UAE’s food security.

“Food security is important for us. We don’t produce that much food and we import a lot of it. And it’s quite vital for us that we have a partner that we can rely on, and India is a reliable partner when it comes to that,” Alshaali noted.