Wall Street’s main indexes dropped on Wednesday, as continued escalation of Russia-Ukraine tensions worried investors, while megacap Nvidia lost ground ahead of quarterly results.

Stocks dipped after a report Ukraine fired long-range British Storm Shadow missiles into Russian territory. That followed Ukraine launching US-made ATACMS missiles into Russia on Tuesday, and Russia announcing it had lowered the threshold for nuclear action.

Wall Street’s “fear gauge” jumped to 18.79 before easing slightly, but it was still trading at its highest since the November 5 US presidential election.

“There’s been more missiles firing between Ukraine and Russia, and the market doesn’t know what to think of that … tensions are escalating, not deescalating and that’s why you’re seeing the selloff in the markets,” said Dennis Dick, trader at Triple D Trading.

Meanwhile, AI leader Nvidia, which is scheduled to report results after the bell, dropped 0.8%, reversing modest premarket gains. The index heavyweight dragged the Information Technology sector as well as the tech-heavy Nasdaq.

Target plunged 20.7% after the retailer forecast holiday-quarter comparable sales and profit below Wall Street expectations following a third-quarter estimate miss.

It dragged down other retailers such as Dollar Tree and Dollar General which fell 3.4% and 4.9%, respectively.

Among other growth stocks, Tesla lost 1.8% and Amazon.com shed 1.7%.

The consumer discretionary and consumer staples indexes lost 1.1% and 0.9%, respectively.

But the spotlight remained on Nvidia, which has nearly tripled in value this year, accounting for about 20% of the S&P 500’s returns over the last 12 months, according to BofA Global Research.

“While expectations for Nvidia are high heading into its latest earnings report, we expect the company to report another strong quarter and live up to these high expectations,” said Clark Bellin, chief investment officer, Bellwether Wealth.

At 10:55 a.m. the Dow Jones Industrial Average fell 40.15 points, or 0.09%, to 43,228.79, the S&P 500 lost 30.00 points, or 0.51%, to 5,886.98 and the Nasdaq Composite lost 123.86 points, or 0.65%, to 18,863.61.

Cryptocurrency stocks ticked higher as bitcoin jumped above $94,000, with MicroStrategy and MARA Holdings up 14.6% and 13%, respectively.

Comments from Federal Reserve officials including Michelle Bowman and Susan Collins are expected through the day.

Traders have increased their bets on the US central bank leaving interest rates unchanged at its December meeting in the wake of strong economic data and signs of persistent inflation. They see a 44.5% chance of a pause next month, according to CME’s FedWatch tool.

Fed Governor Lisa Cook said recent data suggests that more cuts are likely appropriate as disinflation is expected to continue.

Declining issues outnumbered advancers by a 1.85-to-1 ratio on the NYSE and a 1.38-to-1 ratio on the Nasdaq.

The S&P 500 posted 25 new 52-week highs and nine new lows, while the Nasdaq Composite recorded 66 new highs and 107 new lows.

Source: Reuters

Despite their high potential to advance global prosperity, one-half of the world’s 75 most vulnerable countries are facing a widening income gap with the wealthiest economies for the first time in this century, a new World Bank report has found. Taking full advantage of their younger populations, their rich natural resources, and their abundant solar-energy potential can help them overcome the setback.

The report, The Great Reversal: Prospects, Risks, and Policies in International Development Association Countries, offers the first comprehensive look at the opportunities and risks confronting the 75 countries eligible for grants and zero to low-interest loans from the World Bank’s International Development Association (IDA). These countries are home to a quarter of humanity—1.9 billion people. At a time when populations are aging nearly everywhere else, IDA countries will enjoy a growing share of young workers through 2070—a huge potential “demographic dividend.” These countries are also rich in natural resources, enjoy high potential for solar-energy generation, and boast a large reservoir of mineral deposits that could be crucial for the world’s transition to clean energy.

Yet a historic reversal is underway for them. Over 2020-24, average per capita incomes in half of IDA countries—the largest share since the start of this century—have been growing more slowly than those of wealthy economies. This is widening the income gap between these two groups of countries. One out of three IDA countries is poorer, on average, than it was on the eve of the COVID-19 pandemic. The extreme-poverty rate is more than eight times the average in the rest of the world: one in four people in IDA countries struggles on less than $2.15 a day. These countries now account for 90 percent of all people facing hunger or malnutrition. Half of these countries are either in debt distress or at high risk of it. Still, except for the World Bank Group and other multilateral development donors, foreign lenders—private as well as government creditors—have been backing away from them.

“The world cannot afford to turn its back on IDA countries,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President. “The welfare of these countries has always been crucial to the long-term outlook for global prosperity. Three of the world’s economic powerhouses today—China, India, and South Korea—were all once IDA borrowers. All three prospered in ways that whittled down extreme poverty and raised living standards. With help from abroad, today’s batch of IDA countries has the potential to do the same.”

More than half of all IDA countries—39 in all—are in Sub-Saharan Africa. Fourteen of them—mainly small island states—are in East Asia, and eight are in Latin America and the Caribbean. In South Asia, all countries except for India are IDA countries. Thirty-one IDA countries have per capita incomes of less than $1,315 a year. Thirty-three are fragile and conflict-affected states.

IDA countries share similar opportunities. The “demographic dividend”—a deep and growing reserve of young workers—is one of them. Abundant natural resources is another. These countries account for about 20 percent of global production of tin, copper, and gold. In addition, some IDA countries possess critical mineral deposits essential for the global energy transition. Because of their abundant sunshine, most IDA countries are well situated to take advantage of solar energy. On average, their long-term daily solar-electricity generation potential is among the highest in the world.

This potential, however, comes with risks that must be managed. To reap the demographic dividend, IDA governments will need to undertake policies to improve education and health outcomes and make sure that jobs are available for the rising number of young people who will enter the workforce in the coming decades. To seize the full potential of their natural-resource wealth, IDA countries will need to improve policy frameworks and build stronger institutions capable of better economic management. All of this will require ambitious domestic policy reforms—and significant financial support from the international community.

“IDA countries have incredible potential to deliver strong, sustainable, and inclusive growth. Realizing this potential will require them to implement an ambitious set of policies centered on boosting investment,” said Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “This means improving fiscal, monetary, and financial policy frameworks and advancing an array of structural reforms to strengthen institutions and enhance human capital.”

IDA countries today have large investment needs. In the poorest of them, closing existing development and infrastructure gaps and building resilience to climate change will require investment that amounts to nearly 10 percent of GDP. The costs of climate disasters have doubled in IDA countries over the past decade: Economic losses from natural disasters average 1.3% of GDP a year—four times the average of other emerging market and developing economies. Such needs will require IDA countries to generate sustained investment booms—the type that boosts productivity and incomes and reduces poverty. Historically, such investment booms have often been sparked by a comprehensive package of policy measures—to bolster fiscal and monetary frameworks, ramp up cross-border trade and financial flows, and improve the quality of institutions. Such reforms are never easy, the report notes. They need careful sequencing and implementation. But previous IDA countries have shown they are possible.

IDA countries will need significant international financial support to make progress and lower the risk of “protracted stagnation,” the report notes. Stronger cooperation on global policy issues—including fighting climate change, facilitating more timely and effective debt restructurings, and supporting cross-border trade and investment—will also be crucial to help IDA countries avert a lost decade in development.

Sam Bankman-Fried – also known as SBF – has been sentenced to 25 years in prison for stealing billions of dollars from customers of his cryptocurrency exchange FTX

After a two hour hearing the judge, Lewis Kaplan, said Bankman-Fried knew what he was doing was criminal and regretted making a bad bet about the likelihood of being caught

“There are a lot of mistakes that I made,” Bankman-Fried told the court, but maintained FTX had the ability to repay customers when it imploded

Prosecutors say Bankman-Fried took more than $10bn (£7.9bn) from unsuspecting customers in “one of the biggest financial frauds” in US history

FTX was valued at $32bn before it went bankrupt in 2022 and SBF crafted a public image that drew in celebrities, politicians and business titans.

Source: BBC

An oil tanker is on fire in the Gulf of Aden, its operator says, after Houthis said they hit it with a missile.

The movement said it had targeted the Marlin Luanda on Friday evening.

Operator Trafigura told the BBC the strike caused a fire in one of the ship’s cargo tanks and firefighting equipment was being used to contain it.

US officials told the BBC’s US partner CBS the tanker was hit by an anti-ship ballistic missile and a naval ship was responding to its distress signal.

There were no injuries reported, the US officials said.

It is the latest attack on commercial shipping by the Houthis in and around the Red Sea.

The UK Maritime Trade Operations (UKMTO) said that the incident happened 60 nautical miles south-east of Aden.

The UKMTO said warships were in attendance and supporting the vessel, adding all crew had been reported safe.

It warned other vessels to transit with caution and report any suspicious activity.

Trafigura confirmed the vessel had been struck and military ships were on their way to provide assistance.

“Firefighting equipment on board is being deployed to suppress and control the fire caused in one cargo tank on the starboard side,” a Trafigura spokesperson said.

Source: BBC

Houthi rebels have hit a US-owned container ship with a ballistic missile off the coast of Yemen, the US says.

The vessel, Gibraltar Eagle, reported “no injuries or significant damage”, according to the United States military command for the Middle East (Centcom).

The Marshall Islands-flagged vessel is continuing on its journey in the Gulf of Aden.

Iranian-backed Houthis have been attacking ships since November, in protest at Israel’s war against Hamas.

Shipping company Eagle Bulk Shipping said its vessel was carrying steel products and was about 160km (100 miles) offshore in the Gulf of Aden when it was hit.

It said the container “suffered limited damage to a cargo hold but is stable and is heading out of the area”.

Hours earlier Centcom said that another missile, fired in the direction of a US destroyer in the Red Sea, had been intercepted and shot down by a US fighter jet.

The Houthis have been attacking commercial ships in the Red Sea that the group says are linked to Israel, or bound for Israeli ports. It says the attacks are a show of support for the Palestinians and Hamas in Gaza, as Israel continues its military campaign there.

The British maritime security firm, Ambrey, says the Gibraltar Eagle was “assessed to not be Israel-affiliated”.

But a senior Houthi official said on Monday that American vessels were also considered targets. “It is enough for ships to be American for us to target them”, Nasr al-Din Amer said.

The Houthi attacks on cargo ships in the Red Sea have led many of the world’s biggest shipping companies to change course, thus causing major disruption to global commerce.

In reaction to Monday’s strike, the US Department of Transportation issued a maritime alert, recommending “that US flag and US-owned commercial vessels” remain clear of specified areas in the Red Sea and Gulf of Aden.

On Monday, the world’s second largest oil company, QatarEnergy, announced its decision to pause shipping via the route while it sought security advice.

Last week, US and the UK forces struck Houthi targets in Yemen in retaliation for attacks on shipping. The joint forces, in coordination with allies, carried out dozens of air and sea strikes on Houthi missile launch sites and air defence systems inside Yemen.

Source: BBC

Amid the biggest surge in global interest rates in four decades, developing countries spent a record $443.5 billion to service their external public and publicly guaranteed debt in 2022, the World Bank’s latest International Debt Report shows. The increase in costs shifted scarce resources away from critical needs such as health, education, and the environment.

Debt-service payments—which include principal and interest—increased by 5 percent over the previous year for all developing countries. The 75 countries eligible to borrow from the World Bank’s International Development Association (IDA)—which supports the poorest countries—paid a record $88.9 billion in debt-servicing costs in 2022. Over the past decade, interest payments by these countries have quadrupled, to an all-time high of $23.6 billion in 2022. Overall debt-servicing costs for the 24 poorest countries are expected to balloon in 2023 and 2024—by as much as 39 percent, the report finds.

“Record debt levels and high interest rates have set many countries on a path to crisis,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President. ‘Every quarter that interest rates stay high results in more developing countries becoming distressed—and facing the difficult choice of servicing their public debts or investing in public health, education, and infrastructure. The situation warrants quick and coordinated action by debtor governments, private and official creditors, and multilateral financial institutions—more transparency, better debt sustainability tools, and swifter restructuring arrangements. The alternative is another lost decade.’’

Surging interest rates have intensified debt vulnerabilities in all developing countries. In the past three years alone, there have been 18 sovereign defaults in 10 developing countries—greater than the number recorded in all of the previous two decades. Today, about 60 percent of low-income countries are at high risk of debt distress or already in it.

Interest payments consume an increasingly large share of low-income countries’ export, the report finds. More than a third of their external debt, moreover, involves variable interest rates that could rise suddenly. Many of these countries face an additional burden: the accumulated principal, interest, and fees they incurred for the privilege of debt-service suspension under the G-20’s Debt Service Suspension Initiative (DSSI). The stronger US dollar is adding to their difficulties, making it even more expensive for countries to make payments. Under the circumstances, a further rise in interest rates or a sharp drop in export earnings could push them over the edge.

As debt-servicing costs have climbed, new financing options for developing countries have dwindled. In 2022, new external loan commitments to public and publicly guaranteed entities in these countries dropped by 23% to $371 billion—the lowest level in a decade. Private creditors largely abstained from developing countries, receiving $185 billion more in principal repayments than they disbursed in loans.

That marked the first time since 2015 that private creditors have received more funds than they put into developing countries. New bonds issued by all developing countries in international markets dropped by more than half from 2021 to 2022, and issuances by low-income countries fell by more than three-quarters. New bond issuance by IDA-eligible countries fell by more than three-quarters to US$3.1 billion.

With financing from private creditors drying up, the World Bank and other multilateral development banks stepped in to help close the gap. Multilateral creditors provided $115 billion in new low-cost financing for developing countries in 2022, nearly half of which came from the World Bank. Through IDA, the World Bank provided $16.9 billion more in new financing for these countries than it received in principal repayments—nearly three times the comparable number a decade ago. In addition, the World Bank disbursed $6.1 billion in grants to these countries, three times the amount in 2012.

The latest International Debt Report marks the publication’s 50th anniversary. It highlights key insights from the World Bank’s International Debt Statistics database—the most comprehensive and transparent source of external debt data of developing countries. The new edition also features an expanded analytical framework, one that goes beyond the latest data to examine near-term outlook for debt as well. It also includes an overview of the Bank’s debt-related activities and an analysis of emerging trends in debt management and transparency.

“Knowing what a country owes and to whom is essential for better debt management and sustainability,” said Haishan Fu, Chief Statistician of the World Bank and Director of the World Bank’s Development Data Group. “The first step in avoiding a crisis is having a clear picture of the challenge. And when problems arise, clear data can guide debt restructuring efforts to get a country back on track towards economic stability and growth. Debt transparency is the key to sustainable public borrowing and accountable, rules-based lending practices which are so vital to ending poverty on a livable planet.”

The report notes that IDA-eligible countries have spent the last decade adding to their debt at a pace that exceeds their economic growth—a red flag for their prospects in the coming years. In 2022, the combined external debt stock of IDA-eligible countries hit a record US$1.1 trillion—more than double the 2012 level. From 2012 through 2022, IDA-eligible countries increased their external debt by 134%, outstripping the 53% increase they achieved in their gross national income (GNI).

Although the global economy is in a much better position than it was in the 1970s to cope with a major oil-price shock, an escalation of the latest conflict in the Middle East—which comes on top of disruptions caused by the Russian invasion of Ukraine—could push global commodity markets into uncharted waters, according to the World Bank’s latest Commodity Markets Outlook.

The report provides a preliminary assessment of the potential near-term implications of the conflict for commodity markets. It finds that the effects should be limited if the conflict doesn’t widen. Under the Bank’s baseline forecast, oil prices are expected to average $90 a barrel in the current quarter before declining to an average of $81 a barrel next year as global economic growth slows. Overall commodity prices are projected to fall 4.1% next year. Prices of agricultural commodities are expected to decline next year as supplies rise. Prices of base metals are also projected to drop 5% in 2024. Commodity prices are expected to stabilize in 2025.

The conflict’s effects on global commodity markets have been limited so far. Overall oil prices have risen about 6% since the start of the conflict. Prices of agricultural commodities, most metals, and other commodities have barely budged.

The outlook for commodity prices would darken quickly if the conflict were to escalate. The report outlines what might happen under three risk scenarios based on historical experience since the 1970s. The effects would depend on the degree of disruption to oil supplies. In a “small disruption” scenario, the global oil supply would be reduced by 500,000 to 2 million barrels per day—roughly equivalent to the reduction seen during the Libyan civil war in 2011. Under this scenario, the oil price would initially increase between 3% and 13% relative to the average for the current quarter—-to a range of $93 to $102 a barrel.

In a “medium disruption” scenario—roughly equivalent to the Iraq war in 2003—the global oil supply would be curtailed by 3 million to 5 million barrels per day. That would drive oil prices up by 21% to 35% initially—to between $109 and $121 a barrel. In a “large disruption” scenario—comparable to the Arab oil embargo in 1973— the global oil supply would shrink by 6 million to 8 million barrels per day. That would drive prices up by 56% to 75% initially—to between $140 and $157 a barrel.

“The latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets since the 1970s—Russia’s war with Ukraine,” said Indermit Gill, the World Bank’s Chief Economist and Senior Vice President for Development Economics. “That had disruptive effects on the global economy that persist to this day. Policymakers will need to be vigilant. If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades—not just from the war in Ukraine but also from the Middle East.”

“Higher oil prices, if sustained, inevitably mean higher food prices,” said Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “If a severe oil-price shock materializes, it would push up food price inflation that has already been elevated in many developing countries. At the end of 2022, more than 700 million people—nearly a tenth of the global population—were undernourished. An escalation of the latest conflict would intensify food insecurity, not only within the region but also across the world.”

The fact that the conflict has so far had only modest impacts on commodity prices may reflect the global economy’s improved ability to absorb oil price shocks. Since the energy crisis of the 1970s, the report says, countries across the world have bolstered their defenses against such shocks. They have reduced their dependence on oil—the amount of oil needed to generate $1 of GDP has fallen by more than half since 1970. They have a more diversified base of oil exporters and expanded energy resources, including renewable sources. Some countries have established strategic petroleum reserves, set up arrangements for the coordination of supply, and developed futures markets to mitigate the impact of oil shortages on prices. These improvements suggest that an escalation of the conflict might have more moderate effects than would have been the case in the past.

Policymakers nevertheless need to remain alert, the report says. Some commodities—gold in particular—are flashing a warning about the outlook. Gold prices have risen about 8% since the onset of the conflict. Gold prices have a unique relationship to geopolitical concerns: they rise in periods of conflict and uncertainty often signaling an erosion of investor confidence.

If the conflict escalates, policymakers in developing countries will need to take steps to manage a potential increase in headline inflation. Given the risk of greater food insecurity, governments should avoid trade restrictions such as export bans on food and fertilizer. Such measures often intensify price volatility and heighten food insecurity. They should also refrain from introducing price controls and price subsidies in response to higher food and oil prices. A better option is to improve social safety nets, diversify food sources, and increase efficiency in food production and trade. In the longer term, all countries can bolster their energy security by accelerating the transition to renewable energy sources—which will mitigate the effects of oil-price shocks.

Source: World Bank

The IMF announced Saturday member nations agreed to increase their contributions to the global lender and give sub-Saharan Africa a third seat on its executive board at its first meetings on the continent since 1973.

Boosting the International Monetary Fund’s quota resources and giving Africa a bigger voice within the institution were among the priorities of the week-long talks of the IMF and World Bank in Marrakech, Morocco.

Spanish Economy Minister Nadia Calvino, who chairs the IMF Financial Committee, said at a press conference that there was “agreement on a meaningful increase of quotas by the end of the year.”

The quotas, which are based on the size of a country’s economy, determine how much funding a nation should provide to the IMF, its voting power and the maximum amount of loans it can obtain.

IMF chief Kristalina Georgieva and World Bank President Ajay Banga used this week’s meetings to urge members to step up funding so their institutions can better support nations hit by poverty and climate change.

The conflict between Israel and Palestinian militant group Hamas has raised concerns about its impact on already weak global economic growth in the wake of the Ukraine war, elevated inflation and high interest rates.

Georgieva said the agreement on quotas was “very heartwarming.”

The goal, she said, was “to make the fund strong financially in terms of our ability to step up should we be hit by yet another shock.”

Asked when the IMF will change its voting shares, Georgieva said: the “membership has agreed that this is going to be the next step and that there will be a clear pathway and plan to go there.”

Giving countries like China, which is now the world’s second biggest economy, a larger voting share has been a controversial issue.

China has a 6.08 percent share of votes compared to 6.14 percent for Japan, the third global economy.

“At some point, a revision of the IMF’s quota distribution will be inevitable,” French central bank governor Francois Villeroy de Galhau said in Marrakesh on Wednesday.

“But the emerging countries that will benefit from this — including China — will have to accept common rules of the game,” he said.

While voting shares were not changed, the IMF agreed to expand its executive board from 24 to 25 members to give Africa another seat.

Sub-Saharan Africa will now have three executive board members instead of two.

“I will finish with what warmed my heart the most: uniform support for a third African chair on our executive board,” Georgieva said.

“That is so important for meetings that take place on African soil,” she said.

“Despite all the difficulties I can only praise our members for finding this pathway to solidarity on which hundreds of millions of people depend.”

Source: AFP

South Asia is expected to grow by 5.8% this year—higher than any other developing country region in the world, but slower than its pre-pandemic pace and not fast enough to meet its development goals, says the World Bank in its twice-a-year regional outlook.

Released today, the latest South Asia Development Update, Toward Faster, Cleaner Growth forecasts growth to slow to 5.6% in 2024 and 2025, as post-pandemic rebounds fade and a combination of monetary tightening, fiscal consolidation, and reduced global demand weigh on economic activity.

Growth prospects are subject to downside risks, including due to fragile fiscal positions. Government debt in South Asian countries averaged 86% of GDP in 2022, increasing the risks of defaults, raising borrowing costs, and diverting credit away from the private sector. The region could also be affected by a further slowdown in China’s economic growth and natural disasters made more frequent and intense by climate change.

“While South Asia is making steady progress, most countries in the region are not growing fast enough to reach high-income thresholds within a generation,” said Martin Raiser, World Bank Vice President for South Asia. “Countries need to urgently manage fiscal risks and focus on measures to accelerate growth, including by boosting private sector investment and seizing opportunities created by the global energy transition.”

In India, which accounts for the bulk of the region’s economy, growth is expected to remain robust at 6.3% in FY23/24. Output in Maldives is expected to grow by 6.5% in 2023 and in Nepal is expected to rebound to 3.9% in FY23/24, thanks to the strong rebound in tourism in both countries. Several countries in the region are still suffering from the aftermaths of recent currency crises. In Bangladesh, growth will slow to 5.6% in FY23/24. In Pakistan, growth is forecast at only 1.7% in FY23/24, below the rate of population growth. Sri Lanka is showing signs of recovery after a severe recession and the economy is expected to grow by 1.7% in 2024, after contracting by 3.8% in 2023.

Constrained by fiscal challenges, governments have limited room to help their economies fully capitalize on the global energy transition. Though often seen as an additional burden for developing countries, for South Asia, the energy transition could present an opportunity for future growth and job creation—if it leads to more investments by firms, cuts air pollution, and reduces the reliance on fuel imports. Even with limited fiscal space, countries can encourage firms to adopt more energy-efficient technologies through market-based regulations, information campaigns, broader access to finance, and reliable power grids.

“South Asia’s energy intensity of output is about twice the global average and the region lags in the adoption of more advanced energy-efficient technologies,” said Franziska Ohnsorge, World Bank Chief Economist for South Asia. “Improvements in energy efficiency, in the context of a rapid global energy transition, are an opportunity for South Asia to make progress toward both environmental and economic goals.”

The energy transition will also have significant impacts on South Asia’s labor markets. Almost one-tenth of the region’s workers are employed in pollution-intensive jobs. These jobs are concentrated among lower-skilled and informal workers who are more vulnerable to labor market shifts. While the energy transition can help create more new jobs, it could also leave some workers stranded in declining industries. The report recommends a wide range of policies to protect such workers, including providing better access to high-quality education and training, finance, and markets; facilitating worker mobility; and strengthening social safety nets.

Culled from the World Bank