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Friday December 9th, 2022

Wall Street’s swoon doesn’t worry economists… yet

AFP  – Wall Street’s nosedive this week and a spike in market volatility, surprising as they were, do not threaten US economic momentum, according to economists, some of whom even welcome the falling prices.

But if there were a prolonged retreat in equities markets, that could spill over into the real economy under some circumstances, they say.

"This was not that big of a bump in the equity market," William Dudley, president of the Federal Reserve Bank of New York, said Wednesday during a conference.

The rocky few days of trading would have "virtually no consequence" for the larger economy, he said.

The flag-ship Dow Jones Industrial Average shed 4.6 percent on Monday, posting its biggest single day point drop ever and sparking a global selloff, but it recovered some of the losses in a wildly volatile session Tuesday.

While Dudley noted that stocks remained well above their levels from a year ago, a sharp correction on Wall Street could still be something to worry about.

According to Oxford Economics, an average dip of 10 percent on world equities markets would shave 0.3 percentage points off of GDP growth for the Group of 7 major economies over two years.

The fallout could be worrisome for consumer and business confidence. The rising market over the past year as Wall Street hit repeated records, gave a boost to American retirement accounts that has helped sustain consumer spending, a key driver of the US economy.

Even after this week’s losses, the Dow is still up 37 percent since President Donald Trump’s election in November 2016. He has repeatedly taken credit for Wall Street’s heady run but was quiet Monday.

But in a tweet Wednesday he seemed to criticize the market moves.

"In the ‘old days,’ when good news was reported, the Stock Market would go up," the president said on Twitter.

"Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!"

– Does the Fed actually care? –

Now in the ninth year of recovery, the world’s largest economy grew at an annual rate of 2.6 percent in the final quarter of 2017.

Trump insists growth could top three percent this year while the Fed predicts growth of 2.5 percent.

But one question on economists’ minds is whether Wall Street’s volatility could alter the Fed’s intentions. The central bank expects to raise rates three times this year to get ahead of an anticipated rise in inflation but this could change if the economy begins to overheat.

Anna Cieslak, professor of economics at Duke University, told AFP her research shows the Fed does react to market movements.

"While the reading of Fed texts suggests that the Fed is not outright willing to admit that they care about the stock market, they certainly care about financial conditions," she said.

The Fed appears to react to negative market shocks by delivering "unexpectedly positive news" to reassure the market, she added.

Dudley appeared to echo this view, saying that so far, at least, the week’s wide ride for stocks was a "big story" for the press and for market players "but I don’t think it’s a big story at all for central bankers."

But a prolonged market downturn would be another story.

"If the stock market would have gone down precipitously and stayed down then that would feed into the economic outlook and that would affect my view in term of what the implication for monetary policy," he said.

Still, according to Capital Economics, the dip in stock prices "may conceivably be nothing more than a healthy correction."

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Sri Lanka president slams power regulator chief after conflicting with minister

ECONOMYNET – The powers to change the electricity tariff in Sri Lanka is vested with the Minister of Power and not the Public Utilities Commission (PUCSL), President Ranil Wickremesinghe told the Parliament.

The minister of Power and Energy, Kanchana Wijesekara has requested an upward price revision to be implemented in two phases both in January and July next year, saying the recent tariff hike was not enough for the state-run utility provider Ceylon Electricity Board (CEB) to continue uninterrupted power supply.

However, Jaynaka Ratnayake, the Chairman of the PUCSL had said  the recent tariff hike is enough for the CEB to cover the cost of production and it will not allow another price hike. However, he has said a twice a year price revision is necessary though it should be in April and October instead of January and July.

President Wickremesinghe said the PUCSL chief was opposing the tariff hike due to his personal reasons.

“The power is vested with the Minister and me. I am the one who made the PUCSL act and I know what is in it,” Wickremesinghe told the parliament on Thursday. quoting a letter from the Attorney General which mentioned provisions in the island nation’s Electricity Act.

Accordingly the Act, the PUCSL would be statutorily obliged to give effect to such policy. It is observed that neither the Act nor the PUCSL Act contains any provisions that empowers the PUCSL to change or act invariant of such policy guidelines.

“The Chairman of the PUCSL is misguiding the general public. I have to meet him and see,” Wickremesinghe said.

WIckremesinghe said the Chairman does not want the tariff hike because he owns one of the highest electricity consuming companies.

“He is the Chairman of the Trillium corporation. It is the firm that takes up the most energy”, he said.

The Trillium group is managed by Janaka Ratnayake and he also holds positions as the chairman and CEO of Trillium Property Management & Services Ltd., City Housing and Real Estate PLC, Trillium Residencies Ltd., Computer Care (Pvt) Ltd., and Rent a Comp Services (Pvt) Ltd., and JR Management Consultants (Pvt) Ltd.

“It means when the electricity bill increases, his expenses increase as well”

He said the CEB still has a loss of 300 billion rupees since 2013 and it needs to be covered.

The CEB issue can be solved only in three ways, either printing more money, increasing value added tax or increasing the tariffm, he said. (Colombo/Dec08/2022)

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Sri Lanka President bemoans over inconsistent LNG deals

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe bemoaned over successive governments’ liquefied natural gas (LNG) deal that has brought in all the world powers into the discussion.

Wickremesinghe’s center-right United National Party (UNP) had discussions with India and Japan between 2002-2004 for an LNG project.

“Following dialogues with India and Japan, the UNP government could come to agreements to get two LNG power plants. After we were defeated the successor government, without cancelling those agreements granted it to New Fortress company in USA,” Wickremesinghe told the parliament.

“Thereafter, as they did not like New Fortress, they gave it back to Pakistan and China. So within the same premises, there were China, Pakistan, India, USA, Japan and only Russia was not there.”

“It was wonderful that a world war did not ignited there as there were five main powers in the world.”

“Now there is no LNG or anything here and now they ask me to solve this issue.”

Wickremesighe’s outburst comes as his government is forced to raise tariffs on power prices after successive governments failed to implement cheap and renewable power generation projects.

He said a total loss for the state-run Ceylon Electricity Board since 2013 was 300 billion rupees and a possible drought next year could increase the 2023 electricity cost to 420 billion rupees.

“If it rained, we need Rs. 352 billion while Rs. 295 is required if rained so much to have floods. How are we going to find this money? We would have to print money, but Rupee would depreciate. We would have to increase VAT but it would increase the price of all commodities or to charge it direct.” (Colombo/Dec08/2022)

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Air quality drop forces Sri Lanka to close schools; public warned

ECONOMYNEXT – A rapid drop in air quality in Sri Lanka has forced the Colombo government to close all schools across the country after a deep depression over Southeast Bay of Bengal, officials said.

The Education Ministry, issuing a special notice on Thursday said, it has decided to close all government schools for Friday, after discussing with the officials in Meteorology Department and Disaster Management Center.

An official said the drop was due to the deep depression over Southeast Bay of Bengal carrying the air from India.

Due to the depression over South east Bay of Bengal (370 km east of Trincomalee) has concentrated into a cyclonic storm “Mandous” by Wednesday night.

“Cyclone in the Bay of Bengal that is the prime reason for the increase in the pollution load as we receive more wind from India,” H.D.S.Premasiri, Senior Scientist, Coordinator-Air Quality, noise and vibrations at National Building Research Organization (NBRO) told EconomyNext on Thursday.

Officials said there is a likelihood of the cyclone moving west-northwestwards and further intensify into a severe cyclonic storm tonight and cross North Tamil-Nadu, Puducherry and South Andhra Pradesh coast around midnight of 09 th December and the maximum wind speeds will be 70-90 km per hour and can increase up to 90 in sea areas.

“Hopefully, today we can expect normalization in the environment and the effects of the fog will disappear”.

According to the NBRO’s real time Air Quality Index Indicator, the quality of air in northwestern coastal district of Puttalam has dropped drastically and indicated a particular matter (PM) 132, while Kegalle (85) and Mannar (84) were the districts which had next worst air quality.

According to NBRO, Battaramulla, Polonnaruwa, Dambulla, Kegalle, Mannar and Puttalam indicate a poor quality of air due to higher PM.

“The fog will lead to lung and breathing issues,” Premasiri said.

“So the public is warned to wear a mask when they travel outside. The pollution highly prevails in city areas and has a less impact on the other parts of the areas.” (Colombo/ Dec08/2022)

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