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ECB’s Holzmann says central bank’s new policy guidance was a step too far



LONDON — Another member of the European Central Bank has expressed “reservations” about the latest policy statement made by the Frankfurt-based institution, further highlighting the division within the central bank.

“I had, like Mr. Weidmann and Mr. Wunsch reservations with the proposal,” Robert Holzmann, governor of the Austrian Central Bank and a hawkish member of the ECB’s Governing Council, told CNBC’s “Street Signs Europe” Tuesday, mentioning his German and Belgian colleagues.

His words follow last week’s announcement that the ECB will pursue a “persistently accommodative” stance — meaning interest rates will remain at low levels for the foreseeable future.

The ECB said in a statement that it expects interest rates to remain at their present or lower levels until it sees inflation in line with the target of 2% “well ahead” of the end of its forecast horizon. It was seen as a dovish stance and disgruntled hawks at the bank that believe that it’s committing to stimulus for too long.

According to Holzmann, this statement went “a step too far”.

“We would have wished a different guidance, which doesn’t bind us too long in the future, in order to stay agile, and ready in case inflation requires an earlier liftoff,” he said, indicating that as a result of the new guidance rates might not change before 2025.

Speaking to CNBC last week, ECB member Pierre Wunsch, also a noted hawk, confirmed he had voted against the latest guidance on interest rates, saying he was reluctant to commit to a potential five or six-year time horizon of further stimulus. Media reports also suggested that German Central Bank Governor Jens Weidmann also voted against the new guidance.

There has always been somewhat of a divide within the ECB, between members who are keen to keep monetary stimulus and those that are more skeptical about intervention. Concerns about the future of inflation seem to be reigniting that old divide.

Consumer prices in the euro zone hit the ECB’s target of 2% in May, but fell slightly to 1.9% in June. The data has led to questions about whether higher inflation is here to stay, as this would mean monetary stimulus could be reduced.

It is “a tail risk that we cannot exclude, that inflation goes well beyond and may stay there,” Holzmann said.

The current inflation dynamics lets us expect that we will go above and then down again, but we cannot discount it,” he added.

The latest ECB projections point to a headline inflation of 1.9% by the end of the year, followed by 1.5% in 2022. The ECB’s policy mandate is to support a headline inflation of 2%.

“Our mandate breaks any forward guidance, but I think it would have been more honest to the markets to tell [them] ‘Yes, we want to stay accommodative as it is for the time being, but we stand ready to change the rate if it’s necessary’,” Holzmann added.

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Bitcoin falls as much as 10% as risky assets tumble globally, regulatory concerns intensify



Bitcoin prices fell sharply amid the global sell-off in equities.

Luke MacGregor  | Bloomberg | Getty Images

The price of bitcoin dropped sharply Monday as investors began shedding risk amid a global equity markets decline.

While bitcoin is often called a safe haven asset, the growing reality is its price tends to go down amid broader declines in risk assets. Bitcoin’s rally has so far coincided with the broader risk-on rally and much like stocks, bitcoin’s price also usually experiences a September slide.

Bitcoin lost as much as 10% Monday morning. It was last down 7% and trading at $43,849.85, according to Coin Metrics. The broader crypto market is in the red too, with ether last down 8% to $3,053.15.

“This sell-off is the continuation of a well-established pattern where traders cash in their riskier assets to cover margin calls or sit on the sidelines until markets calm down and they feel more comfortable going back into riskier positions,” Leah Wald, CEO at crypto asset manager Valkyrie Investments, told CNBC. “If ever bitcoin had the opportunity to establish itself as a safe haven or as digital gold, with U.S. companies also signaling their earnings calls are going to reveal poor results, now feels like the time.”

Global equity markets are sliding as investors fear spreading risk from a shakeout in China’s property market tied to highly indebted developer Evergrande. Investors are also focused on the the Federal Reserve and whether it will signal its readiness to start removing monetary stimulus from the economy. The central bank will begin its two-day meeting Tuesday.

Earlier this month it rose above $50,000, a key psychological resistance level for traders. The cryptocurrency is below its 50-day moving average of $46,514, which analysts and traders look to for a change up or down and to get a sense of the intermediate-term trend. Investors should “wait until tomorrow’s close to decide whether to reduce exposure and manage risk of a more prolonged pullback,” Katie Stockton, managing partner at Fairlead Strategies, told CNBC.

The crypto decline comes as uncertainty about the regulation of stablecoins intensifies. The Financial Stability Oversight Council could designate them as systemically risky, the New York Times reported over the weekend, which could subject them and their operators to heavy regulation.

The President’s Working Group on Financial Markets is working up a report on stablecoins and the Fed is expected to put out a report on central bank digital currencies this month that could touch on stablecoin risks.

While bitcoin was sliding its older rival, gold, was in the green with futures up 0.4%.

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‘Tough’ to meet climate finance targets ahead of COP26, Johnson says



September 19, 2021: Prime Minister Boris Johnson boards RAF Voyager at Stansted Airport ahead of a visit to the United States.

Stefan Rousseau – PA Images | PA Images | Getty Images

There is a six out of 10 chance an agreement on climate finance will be reached before the forthcoming COP26 climate change summit, U.K. Prime Minister Boris Johnson has said.

In remarks made to the media during a flight to New York over the weekend, Johnson was asked about securing commitments related to climate finance and, according to the BBC, environmental targets over the next few days.

“Getting it all done this week is going to be a stretch,” he is reported to have said. “But I think getting it all done by COP, six out of 10. It’s going to be tough, but people need to understand that this is crucial for the world.”

Discussions around finance are set to play a key role at COP26, which will be hosted by the U.K. in the Scottish city of Glasgow between Oct. 31 and Nov. 12.

According to the U.N., developed nations have previously said they would “jointly mobilize $100 billion per year by 2020 in support of climate action in developing countries.”

This target is proving to be a challenge. Last week, the OECD said climate finance provided and mobilized by developed countries amounted to $79.6 billion in 2019. This represents a rise compared to the figure of $78.3 billion in 2018 but still falls short of the $100 billion.

“The limited progress in overall climate finance volumes between 2018 and 2019 is disappointing, particularly ahead of COP26,” Mathias Cormann, the OECD’s secretary-general, said in a statement reacting to the numbers.

“While appropriately verified data for 2020 will not be available until early next year it is clear that climate finance will remain well short of its target,” Cormann said. “More needs to be done.”

Johnson’s remarks were published by a number of outlets and on Monday morning the BBC broadcast an excerpt of the discussion. Johnson said while the U.K. had made a “big, big pledge” and “greatly reduced our CO2,” it needed other countries to step up to the plate.

“We’ve been emitting for centuries and these newly industrialized countries say ‘well, why should we pay such a big price?’ So the $100 billion a year that we need to raise is to support those countries [to] make the transition.”

The U.K.’s official website for COP26 states it will “bring parties together to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change.”

Described by the United Nations as a legally-binding international treaty on climate change, the Paris Agreement aims to “limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.”

Monday will see Johnson and U.N. Secretary-General António Guterres hold what’s being described as an “informal leaders roundtable on climate action.”

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Pro-Putin party retains majority in Russian vote but support declines



Russian President Vladimir Putin enters the hall during his meeting with the United Russia Party candidates on August 22, 2021, in Moscow, Russia.

Mikhail Svetlov | Getty Images News | Getty Images

Russia’s ruling party, United Russia, appears to have retained its majority in State Duma elections at the weekend, cementing its control of parliament and bolstering President Vladimir Putin’s power base.

The party, which endorses Putin, has received around 49.7% of the votes so far, according to the latest results from Russia’s Central Election Commission, with 85% of the votes counted.

The party’s nearest rival, the Communist Party, is expected to get around 20% of the vote, and the Liberal Democratic Party of Russia is seen receiving around 7.5% of the vote. Both are seen as token opposition parties in a country known for restricting political opposition and an independent media.

Voter turnout stood at 45.15%, the election commission noted, down from 47.8% in the last election in 2016.

It was widely expected that the ruling United Russia party would secure a victory in the vote which took place between Sept. 17-19. United Russia has been the dominant party in the country for decades and it enthusiastically supports Putin, although he has run as an independent candidate since 2018.

Nonetheless, the party appears to have seen its share of the vote decline — at the last Duma election in 2016, United Russia won 54.2% of the vote. It comes as more Russians bemoan living standards in the country and amid a crackdown on Kremlin critics, such as jailed activist Alexei Navalny, who remains in prison with groups affiliated to him branded extremist organizations and his supporters barred from running for office.

Critics of the Kremlin say there were multiple examples of electoral irregularities and fraud in this weekend’s election, including cases of ballot stuffing and the obstruction of impartial observation of the voting process. Navalny’s press secretary was among those querying the slow publication of electronic votes in Moscow, where United Russia tends to perform less well than in other regions.

Russia’s Central Election Commission said the voting process had proceeded normally and that it investigates any reports of irregularities. It reported on Sunday that, at 45 polling stations in 14 regions, 7,465 ballots had been invalidated for reasons ranging from the defective printing of ballots to the lid of a portable voting box falling off.

“We are very strict about this, very demanding. In case of the slightest doubt, we recommend our commissions to invalidate the ballots,” Ella Pamfilova, the chairperson of the Central Election Commission of Russia, commented.

Independent Russian vote monitor Golos, which itself had been designated a “foreign agent” by the state ahead of the election, said it had received multiple reports of electoral violations.

Over the three days of voting, Golos said Sunday night: “There was an obvious decline in the level of publicity, openness and transparency of the electoral system.”

Changing demographics

Putin, who has alternated between roles as prime minister and president since 1999, has not said whether he will run for re-election in 2024 presidential election, but this latest parliamentary election is seen as shoring up his power base should he choose to do so.

Close watchers of Russia say the vote is hardly a glowing endorsement of Putin and that the Kremlin faces one key challenge: Russia’s changing demographics.

Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, said on Monday that “the story here should be the low turnout – around 47%.”

“So despite all the pressure on state workers to vote the turnout was still embarrassing,” he said, noting that the result was “hardly a vote of confidence in Putin – I would instead argue [it means] a crisis of legitimacy,” he said.

Meanwhile, Chris Weafer, the chief executive officer of Moscow-based strategy consultancy Macro-Advisory, told CNBC on Sunday: “The real issue which scares the Kremlin is the changing demographics.” 

“It means more people born as the Soviet Union ended and since then are becoming a much bigger share of the voter base … This is the generation that travels and uses the internet to a greater extent, on a per capita basis, than people in most other countries,” Weafer said.

He added that this demographic doesn’t buy into the Kremlin’s stability narrative.

“[They] want improved lifestyle, incomes social supports and a better future for themselves and their families,” Weafer said. “The big challenge for President Putin and the so-called Russian ‘elites’ will be how to satisfy those expectations while keeping power. Failure in the former will more severely undermine to latter in the next Presidential term – no matter who that President may be.”

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