Stablecoins ‘threaten financial stability’; China’s commodities boom crackdown; Liberty steelworks for sale – as it happened

Graeme Wearden

from on 2021-05-24 18:49 (#5J6AT)

Rolling coverage of the latest economic and financial news

Bank of England governor: Greensill acts like he's discovered secret of universe
Lael Brainard warns of rise of private money
Brainard: Stablecoins don't provide same protection as bank deposits
Says Federal Reserve is stepping up work on digital dollar

Earlier;

7.46pm BST

Time for a quick recap.

A Federal Reserve governor has warned that stablecoins could be a risk to consumers, and financial stability. Lael Brainard said that the rise of private money' was a concern, as the Fed also steps up its work on a possible digital dollar.

Unlike central bank fiat currencies, stablecoins do not have legal tender status. Depending on underlying arrangements, some may expose consumers and businesses to risk. If widely adopted, stablecoins could serve as the basis of an alternative payments system oriented around new private forms of money.

Given the network externalities associated with achieving scale in payments, there is a risk that the widespread use of private monies for consumer payments could fragment parts of the U.S. payment system in ways that impose burdens and raise costs for households and businesses.

European Closing Bell

FTSE 100 +0.53% at 7,056
STOXX 50 +0.65% at 4,026
CAC 40 +0.34% at 6,408
IBEX 35 +0.09% at 9,212
MIB -0.40% at 24,875

~ @Newsquawk

7.19pm BST

Oil has also pushed higher, with Brent crude up over 3% at $68.50 per barrel.

Uncertainty over the US-Iran nuclear talks seemed to lift crude prices this morning, but the rally also reflects optimism about the recovery from the pandemic.

7.01pm BST

The London stock market ended today on the front foot, as investors anticipated the reopening of the economy.

The blue-chip FTSE 100 index closed 33 points higher at 7051, up 0.5% today.

It seems investors have had a good weekend and have realised how many other people have also been enjoying newly reinstated opportunities.

6.42pm BST

Over in Italy, a bank collapsed over the weekend due to exposure to Greensill Capital and GFG Alliance.

Milan-based Aigis Banca was forced into liquidation by the Bank of Italy, with larger peer Banca Ifis stepping in to buy its healthy assets and liabilities for 1.

The intervention of Banca Ifis makes it possible to avoid the severe social and economic consequences of the situation that has arisen in Aigis Banca as a result of the latter's exposure towards Greensill Bank."

Before its collapse in March, Greensill lent money to companies including Sanjeev Gupta's metals group GFG Alliance, taking invoices in exchange for cash. The loans were then bundled into notes and sold on to banks and other investors. Gupta's GFG Alliance drew heavily on financing from Greensill and the collapse of the financing firm has left the sprawling metals conglomerate teetering on the brink. With GFG defaulting on its debt to Greensill, buyers of the loans, which include Credit Suisse's asset management arm, are facing big losses.

Aigis Banca's problems stemmed from investment products linked to invoices it had purchased from Greensill, according to people familiar with the matter. These included receivables-backed notes linked to Gupta's metals empire, with a document seen by the FT showing that the bank had exposure linked to his Liberty Commodities business.

Italy's Aigis Banca collapsed over the weekend due to exposure linked to Greensill.

The bank had invested in receivables from Sanjeev Gupta's metals empire. Gupta also looked at buying a stake in Aigis last year.

Story w/ @silvia_sb_ & @kayewiggins https://t.co/SLlbb2lWL9

#Greensill even causing problems in Italy now, Milan probably being another popular private plane destination - Italian bank Aigis Banca collapses on exposure to Greensill and GFG @BondHack https://t.co/r40zaKHGXA via @financialtimes

6.21pm BST

On the economic front, governor Andrew Bailey says the employment data shows that the UK has turned the corner, and there's every reason to be reasonable confident.

If we were to see signs that pricing pressure was becoming more generalised, then for me that would be a signal which would cause us to then have to evaluate where we were in terms of guidance, and at what point the guidance falls away.

We are going to have to be looking at the entrails of the inflation evidence very carefully from now onwards,".

6.11pm BST

Andrew Bailey has also reiterated, again, his concerns over crypto assets.

He tells MPs that while innovation is good", there is a danger that people get carried away.

It's why I'm skeptical about cryptos assets, frankly.

They're dangerous, and there's a huge enthusiasm out there.

6.06pm BST

Andrew Bailey also rejected the idea that the insurance industry should be blamed for the collapse of Greensill Capital, because it tightened cover when the pandemic began.

The Bank of England governor told the Treasury Committee that this procyclicality" isn't the root cause of the collapse of Greensill Capital. There are two other reasons.

Once the insurance cover fell away, he went from everything to nothing.

That's a vulnerability in his business model he should have thought about.

5.28pm BST

Bank of England governor Andrew Bailey has also revealed that the BoE informed the UK's National Crime Agency about its concerns over Sanjeev Gupta's bank, Wyelands, back in 2019, followed by the Serious Fraud Office in early 2020.

Bailey told the Treasury Committee that concerns over Wyelands emerged in late 2018 and early 2019 about the lack of transparency around connected lending, and the ultimate beneficial owner, Mr Gupta.

Bank of England governor Andrew Bailey has just revealed that the Bank's Prudential Regulatory Authority notified the National Crime Agency of concerns about Sanjeev Gupta's Wyelands Bank in the autumn of 2019 and the Serious Fraud Office in February 2020.

NEW: Bank of England Gov Bailey reveals to MPs PRA concerns since 2019 over Sanjeev Gupta's Wyelands Bank lack of transparency around connected lending", leading to limits, restrictions & further concerns leading to referrals to National Crime Agency & Serious Fraud Office...

The obvious question is why did Gupta's companies receive taxpayer backed cash, in any form, after his bank was put under investigation from Bank of England's PRA, and was being looked at by SFO and NCA

4.53pm BST

Bank of England governor Andrew Bailey has taken a jab at Lex Greensill - saying that the Australian banker's now-failed business was far less innovative than he claims.

During today's testimony to the Treasury committee, Labour MP Siobhain McDonagh asked Bailey whether prospective receivables were the latest 21st Century development of supply chain finance, or clairvoyance".

In its basic form it's a very straightforward form of financial activity.

It's not rocket science, it's not fintech. It doesn't involve large amounts of innovation.

Andrew Bailey, Bank of England governor, throwing some shade:

"Mr Greensill sometimes presents it (supply chain finance) as if he's discovered the secrets of the universe.

Certainly there was some innovation around it. There may well have been some useful innovation around it"

There are reasons to be skeptical. There's no reason that this traditional form of invoice financing shouldn't have useful innovation. That's perfectly sensible, but there are some reasons to be sceptical in some areas.

4.06pm BST

Bank of England governor Andrew Bailey has also predicted that inflation pressures will ease as the economy exits the pandemic.

In an annual report to parliament's Treasury Committee, Bailey says that price pressures will be transitory':

The Monetary Policy Committee judges that these transitory developments should have few direct implications for inflation over the medium term,"

*BANK OF ENGLAND'S BAILEY SAYS INFLATION EXPECTATIONS REMAIN WELL ANCHORED :

Our evidence session with the Bank of England is underway.

First up, our Chair @MelJStride asks Sir Jon Cunliffe about #Greensill Capital.

Watch it live herehttps://t.co/03qbh2oQ0A pic.twitter.com/wVevX8RvAG

3.48pm BST

Lael Brainard also told CoinDesk's virtual conference that the US economy is a pretty unprecedented' rebound.

She also predicts that the squeeze on supply chains, which has pushed up costs, should subside.

The recent inflation spike seen in some areas of the economy should settle down after prices recover from the lows reached at the start of the pandemic and temporary imbalances between supply and demand are addressed, Federal Reserve Board Governor Lael Brainard said on Monday.

We're in the middle of a pretty unprecedented rebound in the U.S. economy," Brainard said during a virtual discussion organized by CoinDesk. While some prices may increase further over the next several months, Brainard said she expects these pressures associated with supply bottlenecks and the reopening to subside over time."

3.45pm BST

CoinDesk's Anna Baydakova has summarised the key points from Lael Brainard's speech on central bank digital currencies (and a possible digital dollar).

Dr. Lael Brainard, governor of the @federalreserve: "Technology is driving a huge change in the U.S. payment system. The Federal reserve is ramping up its effort on CBDC. The pandemic accelerated the migration from cash to digital payments."#Consensus2021 pic.twitter.com/wnlGBCsPdl

Dr. Lael Brainard, governor of the @federalreserve says that stablecoins don't have a payment status and are not enough to sustain the transition to digital payments. They can fragment the monetary system, she said in a keynote speech at #Consensus2021.

"New forms of private money can lead to concerns about consumer protection and broader financial stability. In contrast, CBDCs can help ensure stability." Lael Brainard, of the @federalreserve, at #Consensus2021

International collaboration on standard setting is needed to ensure the safe implementation of CBDCs, says Lael Brainard of the @federalreserve.#Consensus202

3.11pm BST

Cryptocurrency news: Federal Reserve governor Lael Brainard is warning that stablecoins, whose value is linked to another asset, could threaten consumer protections and undermine financial stability.

Speaking at a virtual conference organised by Coindesk, Brainard warns that the rise of stablecoins could bring risks to consumers and financial stability, if it creates private forms of money'.

By introducing safe central bank money that is accessible to households and businesses in digital payments systems, a CBDC would reduce counterparty risk and the associated consumer protection and financial stability risks.

A stablecoin is a type of digital asset whose value is tied in some way to traditional stores of value, such as government-issued, or fiat, currencies or gold. Stablecoins vary widely in the assets they are linked to, the ability of users to redeem the stablecoin claims for the reference assets, whether they allow unhosted wallets, and the extent to which a central issuer is liable for making good on redemption rights.

It is not obvious that new forms of private money that reference fiat currency, like stablecoins, can carry the same level of protection as bank deposits or fiat currency.

Although various federal and state laws establish protections for users, nonbank issuers of private money are not regulated to the same extent as banks, the value stored in these systems is not insured directly by the Federal Deposit Insurance Corporation, and consumers may be at risk that the issuer will not be able to honor its liabilities. New forms of private money may introduce counterparty risk into the payments system in new ways that could lead to consumer protection threats or, at large scale, broader financial stability risks.

"It is not obvious that new forms of private money that reference fiat currency, like #stablecoins, can carry the same level of protection as bank deposits or fiat currency."

Tether has just surpassed a $60B market cap!
In May 2020, #Tether tokens' market cap was $8B, now a year on we've seen an increase of 581% and demand for Tether token use higher than ever for both trading and retail adoption! pic.twitter.com/7EPeBAEfFh

Between Powell last week and Brainard today, the Fed is clearly more worried about stablecoins than I had realized. https://t.co/hiERnkUB7e pic.twitter.com/4lPY32JW9H

#DigitalCurrency is clearly on the minds of Fed officials. Last week, there was a pop up video from Powell, today Fed Governor Brainard talks says #StableCoin "...may introduce consumer protection and financial stability risks because of their potential volatility."

The latest from the @federalreserve as it prepares the public for the transition to a central bank digital currency . Good stuff on CBDC, digital private money, cross boarder payments & policy considerations: https://t.co/ZlDpq7oAnK

2.03pm BST

Back in the cinema world, Odeon has reported its busiest week in over a year, since reopening after the latest lockdown restrictions were eased.

Echoing Cineworld's upbeat comments this morning, Odeon says it sold more than 300,000 tickets since reopening last Monday, 17th May.

1.49pm BST

Liberty Steel has said it plans to sell its aerospace steel business based in Yorkshire as part of a restructuring deal as it tries to ensure its survival.

The steelmaker, which is owned by the metals magnate Sanjeev Gupta, on Monday said it was in talks with Credit Suisse, a large creditor, over agreements that would give it time to repay its debts.

12.58pm BST

Bankers at Credit Suisse have described last weekend's debt restructuring talks with GFG as helpful.

However, the Guardian understands they are cautiously waiting to see whether Sanjeev Gupta can deliver on the proposal, which would help return billions to its investors.

12.51pm BST

The Liberty Steel restructuring plan comes 10 days after the Serious Fraud Office launched an investigation into the financing of GFG Alliance, including its links to Greensill Capital.

Breaking. 1/ The UK's third largest steel maker, Liberty Steel has announced plans to sell off its Stocksbridge steel plant as part of a restructuring plan it says will allow it to pay back one of its main creditors in full....

2/ The announcement comes after a meeting over the weekend in Dubai between Liberty boss Sanjeev Gupta and representatives of Credit Suisse whose customers lost over a billion pounds when Gupta's main financial backer Greensill cpaital went bust in early March....

3/ Credit Suisse have agreed to pause court proceedings against Mr Gupta's empire while sales process is conducted.

The sale will also include Stocksbridge downstream plants which include the narrow strip mill at Brinsworth and Performance Steels at West Bromwich...

4/ The aerospace industry is major customer of the stocksbridge plant and the acute distress in that industry has seen demand for steel made at Stocksbridhge plummet.

Sources close to Liberty Steel conceded that it was not clear what, if any, value would be realised in a sale..

5/ They also said thet were looking at other options apart from outright sale including joint ventures. However, offloading Stocksbridge would reduce the demands on the capital of the overall group and might therefore be attractive to creditors like Credit Suisse....

6/ The move would allow Liberty to foucs on its Rotherham plant which recycles scrap steel into new. Sources close to Credit Suisse described the developments as inching towards a solution" however...

7/Liberty Steel insiders conceded that launching of investigations into relationship between Liberty and its now defunct backer Greensill by both the Serious Fraud Office and the Financial Conduct Authority were complications in refinancing the UK's third largest steel maker.

12.50pm BST

Liberty Steel says it has also started a formal process to sell its Aluminium Technologies and Pressing Solutions.

Liberty Pressing Solution is based in Coventry, while Liberty Aluminium Technologies has sites in Essex and Kidderminster.

12.32pm BST

Liberty Steel is putting its aerospace and special alloys steel business in Stocksbridge, Sheffield, up for sale as part of a major restructuring plan following the collapse of Greensill Capital.

#Breaking Steel giant Liberty plans to sell off parts of its plant in Stocksbridge as part of a major restructuring process following the collapse of Greensill Capital pic.twitter.com/CsL31m5Oez

This sale will allow LIBERTY to focus on developing its Rotherham plant including its electric arc furnaces into a competitive 2 million tonnes recycled GREENSTEEL plant, one of the largest in Europe.

The plant will make use of some of the millions of tons of steel scrap currently exported by the UK to make more of the quality steel needed in the UK, which is currently being imported.

Massive breaking news:

Liberty Steel confirms it is selling its Stocksbridge plant as part of its efforts to refinance.

It will instead focus on developing its Rotherham plant towards green steel, with plans to make it one of the
largest in Europe.

Story soon.

10.53am BST

After tumbling yesterday, cryptocurrency prices are higher this morning -- but still sharply off their recent peaks.

Bitcoin, which tumbled to just $31,111 during Sunday's turmoil, has now risen back to around $36,500.

Crypto update:#Bitcoin 36607.50 +8.63%#Ether 2287.70 +10.38%#BitcoinCash 624.32 +17.87%#EOS 4.7789 +16.23%#Litecoin 160.34 +16.29%#Stellar 0.4303 +24.04%#Crypto 10 Index 14957 +13.32%#BTC #ETH #BCH #XLM #LTC

Europe's biggest bank's stance on cryptocurrencies comes as the world's biggest and best-known, Bitcoin, has tumbled nearly 50% from the year's high, after China cracked down on mining the currency and prominent advocate Elon Musk tempered his support.

HSBC's stance also contrasts with rival banks such as Goldman Sachs, which Reuters in March reported had restarted its cryptocurrency trading desk.

10.08am BST

The oil price has jumped this morning, after efforts to revive the 2015 Iran nuclear deal and end sanctions on Tehran hit a stumbling block.

The UN's International Atomic Energy Agency was forced to postpone a planned press conference on Sunday that was due to set out details of a one-month extension of the current light-touch inspection regime amid conflicting signals from Iran over whether it would sign up to it.

The IAEA said its director general, Rafael Grossi, will continue consultations with Tehran on a technical agreement. The wider talks in Vienna on reviving the nuclear deal with the west, which Donald Trump took the US out of in 2018, are likely to collapse or be suspended if there is no agreement first between the IAEA and Iran on inspections.

9.38am BST

Cineworld has hopped to the top of the FTSE 250 leaderboard this morning after seeing stronger demand than expected after reopening its doors after the lockdown.

We are especially pleased with the warm welcome our employees have received, and the positive feedback from returning guests. With the releases next week of Cruella, and A Quiet Place 2, we expect next weekend's results to be strong.

When combined with improving consumer confidence and the success of the vaccination rollout, we expect a good recovery in attendance over the coming months, noting the record breaking success of F9 in the Asian market.

Cineworld reports strong opening weekend in UK on 'Peter Rabbit 2' buzz https://t.co/hkdzwuBWXx pic.twitter.com/2r7YZUZmnD

9.21am BST

Range anxiety" -- the fear of running out of power mid-trip-- is one factor holding back the UK's electric car sector.

Drivers need to be confident that they can charge their car quickly when they need to."

9.12am BST

Global mkts start choppy to new week as China jolts commodities. Beijing will punish any monopolies in commodities mkts, China's econ planning agency says. Bloomberg Commodity Index drops. Bonds steady w/US 10y 1.62%. Gold at 1883. #Bitcoin rises after volatile week, now $36.6k. pic.twitter.com/Iibx8OUAUh

9.02am BST

Stocks have opened higher in London, with the FTSE 100 gaining 22 points in early trading to 7040 points, up 0.3%.

Industrial software firm Aveva (+1.5%), telecoms operators Vodafone (+1%) and BT (+1), and pharmaceuticals firm Hikma (+1%) are among the risers, in a fairly quiet start to the week.

8.58am BST

Today's warning about commodities speculation is the toughest comment yet from China's government, says Bloomberg.

Here's a flavour:

The officials from the iron ore, steel, copper and aluminum firms that met with five state agencies in Beijing on Sunday were told excessive speculation and rising international prices were to blame for recent advances.

There's been an unusual amount of attention from policy makers on commodity prices in recent weeks. China's factory-gate prices rose at the fastest pace in more than three years in April, sparking concerns that costlier raw materials could hamper the economic recovery or feed into higher consumer prices.

With policy risk shifting toward government intervention, prices will surely be affected by market sentiment," said Li Ye, an analyst at Shenyin Wanguo Futures Co. in Shanghai.

The rapid surge in commodity prices has badly affected manufacturers and market orders, leading to losses and defaults."

8.46am BST

China is pushing raw material prices down today, but may struggle to keep them down in the longer term, says Jeffrey Halley, senior market analyst at OANDA.

Commodities remain under some pressure as China continues to make noises about speculative excesses driving up prices. They have raised Dalian futures margins and fiddled with VAT on imported ores, but in the bigger picture, raw materials remain not far from their recent highs.

Given that China is a large net importer of ores, there is a limit to what they will be able to achieve in the medium to long term. However, in the short-term, their rumblings seem to be having the desired effect.

8.25am BST

China's commodities crackdown could ease the inflationary pressures being felt by factories, points out Michael Grahn of Danske Bank.

China Targets Speculators and Hoarders' to Stop Commodity Boom

Worth noting copper, steel, aluminium and iron ore getting hammered on chinese exchanges on back of authorities crack-down. Likely a dent in the "inflation's coming" narrative. pic.twitter.com/urE73SlyWK

8.20am BST

Base metals prices have dropped today as China's regulatory curbs spook traders, says Reuters:

Three-month copper on the London Metal Exchange was down 0.1% at $9,870 a tonne by 0708 GMT, aluminium dropped 1.5% to $2,335 a tonne while zinc declined 1.5% to $2,927 a tonne.

In Shanghai, copper closed down 1.4% to 71,640 yuan ($11,136.50) a tonne, aluminium hit a one-month low of 17,935 yuan a tonne, nickel fell to a four-week low at 122,570 yuan a tonne while zinc shed 1.1% to 22,155 yuan a tonne.

8.01am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Commodity prices are on the slide today after China announced a new crackdown on speculators and hoarders' to deflate the boom in raw materials.

This round of price increases is the result of multiple factors, including international transmission but also have many aspects reflecting over-speculation.

#China's most-traded #IronOre futures contract in Dalian extends loss to more than 9% to hit 1,016 yuan per tonne.
The most-traded steel rebar and hot-rolled coil futures contract slid more than 6.5%.https://t.co/vVS0O9qEIi https://t.co/jCrImgjDO1 pic.twitter.com/Hh5FBosJ0g

Asia's iron ore futures tumbled on Monday, after China's state planner warned against commodity price manipulation and vowed to clamp down on speculators. Iron ore for September delivery slid as much as 9.5%, almost hitting the day's downside limit of 10%, $157.87 a tonne. pic.twitter.com/iNwFJnXkii

China's authorities continue to raise concerns about the rise of commodity prices, raising concerns that they may tighten regulations,"

Ferrous Pack under pressure- both Steel & Iron Ore
Iron ore falls for 4th consecutive session- loses more than 14%
Steel Rebar- down 4%
China vows Zero tolerance for commodity futures violation
to severely punish commodity monopoly, price violations pic.twitter.com/PBuw2kKiLz

After a brief bounce off last week's multi-month lows, some of the paper-handed types have seemingly sold-out just passed their breakeven, or decided to pack it in and cut their losses, as Bitcoin's momentum, and the speculative mania that drove it, almost entirely disappears.

Fear and panic in cryptos #BTC #ETH #DOGE pic.twitter.com/EChj5XLguo

"Stores of value" over the past 7 days: Bitcoin -27.5%, Ethereum -44.2%, Dogecoin -39.3%, Cardano -46.4%, Binance Coin -56.3%, XRP -48.9%, Polkadot -57.6%, Internet Computer -43.1%, Bitcoin Cash -54.3%. These are the largest cryptos. Objects of speculation, not "stores of value"

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