What We're Reading:

Ukraine, Russia sign UN deal to export grain on Black Sea. Russia and Ukraine signed separate agreements Friday with Turkey and the United Nations clearing the way for exporting millions of tons of desperately needed Ukrainian grain—as well as Russian grain and fertilizer—ending a wartime standoff that had threatened food security around the globe. (AP)

China stainless steel exports remain high in H1, but is it sustainable? China’s stainless-steel imports stood at 271,300 mt in June, a month-on-month increase of 18.03% and a year-on-year growth of 8.6%, according to SMM statistics. (HSN)

Europe wildfires: Are they linked to climate change? So far this year, the amount of land burnt by fires across the European Union is more than three times greater than what you would expect by the middle of July. (BBC)

Japan sees increasing threat to Taiwan amid Russia’s invasion of Ukraine. Japan’s defense ministry has said it is alarmed at fresh threats from Russia and has growing worries about Taiwan, in an annual report that comes as Tokyo considers significantly increasing military spending. (The Guardian)

Cyber-attacks on Port of Los Angeles have doubled since pandemic. Cyber-attacks on one of the world’s busiest ports have nearly doubled since the start of the Covid pandemic. The number of monthly attacks targeting the Port of Los Angeles is now around 40 million. (BBC)

EU launches infringement procedures against UK over N. Ireland. The European Union has said the U.K. failed to comply with significant parts of the protocol governing post-Brexit trading arrangements for Northern Ireland. (DW)

Rajapaksa ally named Sri Lanka’s prime minister after capital protest site cleared. An ally of the Rajapaksa political family was appointed Friday as Sri Lanka’s prime minister, hours after security forces cleared the main protest site occupied for months by demonstrators angry at the Rajapaksas over the country’s economic collapse. (NPR)

Fed to stick to 75 bps hike in July; 40% chance of recession. The U.S. Federal Reserve will opt for another 75-basis point rate hike rather than a larger move at its meeting next week to quell stubbornly-high inflation as the likelihood of a recession over the next year rises to 40%, a Reuters poll of economists found. (HSN)

UK blames France as travelers face hours-long port delays. Truck drivers and Britons heading off on holiday by ferry faced hours-long waits at the port of Dover on Friday, with authorities blaming French officials for the chaos. (AP)

The alchemy behind falling metal prices. The best economic fortune tellers are back in town. Amongst traders, metals are known for their ability to forecast turning points. When the economy is doing well, prices of base metals like copper rise. On the opposite side of the coin, prices of precious metals like gold fall. (NPR)

Brazil: killing of Lula’s party treasurer raises fears of violent run-up to election. Brazilian political leaders called for calm this week after the killing of a Workers’ party member prompted fears that political violence in the polarized nation will erupt in the run-up to October’s presidential election. (The Guardian)

Italy’s president dissolves parliament, triggering snap election following Draghi’s resignation. Italy’s President Sergio Mattarella dissolved parliament on Thursday, triggering a snap election following the resignation of the country’s Prime Minister Mario Draghi earlier in the day. The national election will take place on September 25. (CNN)

Hong Kong, Macau replicate China’s ‘zero COVID’ measures. Hong Kong and Macau are battling the latest wave of COVID-19 by following China’s controversial “zero COVID” strategy. Analysts fear Beijing is using the strict pandemic measures to tighten its control over these cities. (DW)

A record-breaking heatwave is quickly engulfing all of Europe—starting with Italy, France, Spain and most recently London. Britain recorded its highest temperature ever last week at 40 degrees Celsius (104 degrees Fahrenheit). The extreme heat is putting Europe’s citizens, infrastructure, energy supply and economy to the test.

Infrastructure

Infrastructure in Europe is typically not built to withstand extreme heat. As global temperatures rise, railways, pipes and bridges could be damaged. “In Luton, England, a city 30 miles north of London, record-high temperatures melted an airport runway, shutting down flights for several hours,” CBS News reports. “The excessive heat melted power cables in Portland, leading the city to shut down rail service. Elsewhere, high heat has buckled the steel tracks of railroads, slowing down passenger trains and freight shipments.”

Supply Chains

Heatwaves also can shrink water levels, which are critical routes for trade. Water levels on the Rhine, a thoroughfare linking Switzerland, Germany and Denmark, are at the lowest level since 1970, per CBS News. “[T]he effects of the heat wave are hitting the European economy at the worst possible time, compounding existing supply shortages and rendering Europe's energy equation even more precarious,” Cedric Gemehl of Gavekal Research told the new outlet. “In economic terms, Europe's current hot spell is anything but sunny.”

Food Crisis

Extreme heat is especially devastating to Europe’s agricultural industry, which is already under pressure because of the war in Ukraine and high fertilizer prices. “The negative climate trend will continue, at least until the 2060s, independent of our success in climate mitigation efforts,” World Meteorological Organization Secretary-General Petteri Taalas told journalists at a UN press conference in Geneva. “And under the current situation we are already having this global food crisis because of the war in Ukraine, so this heatwave is going to have further negative impacts on agricultural activities.”

Climate Policy

Record-breaking temperatures in Europe have sounded the alarm bells for leaders around the globe to take action against climate change. For example, U.S. President Joe Biden announced executive actions to address climate change last week—including tax hikes for corporations, a $2.3 billion program to help communities deal with climate change and a proposal for more wind energy. However, Biden did not go as far to declare a climate emergency, which would allow a redirection of spending toward renewable energy.

Energy Prices

In France and Italy, the average weekly price of power has more than tripled, per Axios. Energy was already expensive, largely due to tensions with Russia following its invasion into Ukraine. “The heatwave is still worsening Europe’s energy crisis,” reads an article from Bloomberg. “High water temperatures are curbing French nuclear capacity, while drought means some German coal-fired plants are unable to get fuel delivered by river. Natural gas prices jumped as demand for cooling rose.”

Federal and state elections sched­uled for February and March of next year are the focal point for investors seeking to make sense of Nigeria’s high risks. With President Muhammadu Buhari constitutionally barred from standing for a third term, the main event figures to be a contest between Bola Tinubu, the wealthy former governor of Lagos who was recently chosen to stand as the candidate of the incumbent APC, and Atiku Abubakar, a former vice president who will vie for the top office as the nominee of the main opposition PDP.

Any hope for improved gover­nance and policymaking must be weighed against the questions sur­rounding both the health and the integrity of the two main contestants, who are alleged by their opponents to have acquired their wealth by corrupt means. Given a track record of elector­al fraud and the public’s lack of faith in the judiciary, there is a good chance that the legitimacy of the result will be challenged by the loser, contributing to widespread unrest.

In addition to chronic violence rooted in ethnic and religious conflict that overlaps with a broad north-south division, domestic stability is threat­ened by separatist movements in the southeast and the southwest that be­tray the fact that Nigeria is little more than a nominal flag-bearing sovereign state at grave risk of imploding.

The insecurity is harming the economy. There are some two mil­lion people displaced by the jihadist attacks in the northeast, agricultural production there has been greatly affected, and Nigeria cannot fully benefit from the rise in oil prices due to a lack of refining capacity, meaning that the country must import its own fuel supplies.

Real GDP growth accelerated to 3.6% (year-on-year) in the first quarter of 2022, but a significant slowdown is expected as monetary tightening to combat inflation pushes up borrowing rates, dampening business investment and forcing households to put off sub­stantial purchases. On balance, annual real expansion will be held to no more than 3%, while inflation will remain uncomfortably high, at an average of 16.5%. Despite higher oil prices, the current account balance will remain in deficit, with the shortfall amounting to 1%–2% of GDP.

The analysis above is taken from the June 2022 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB.

Brazil is under scrutiny after congress approved a major spending package, which increased risk levels for the country’s fixed-income markets and raised “red flags among investors and government officials who see little relief in sight,” per International Business Times.

The package includes a 50% increase in social welfare payments, a 1,000 reais (USD $185) payout for self-employed truckers and benefits for taxi drivers, Reuters reported. “The bill has caused alarm among investors, who say it shows a lack of fiscal discipline by the government. The government argues that it needs to act urgently to help Brazilians hurt by high inflation,” the article reads.

President Jair Bolsonaro hopes the spending package will lift his chances of re-election in October. “Bolsonaro trails leftist former President Luiz Inacio Lula da Silva in opinion polls,” per Reuters. “The popularity of the far-right former army captain has been hurt by the high inflation, a weak economy, and his handling of the COVID-19 pandemic.”

But experts worry more government spending will actually boost Brazil’s 12% inflation rate and hurt the country’s exchange rate. “Concerns about Brazil's credit profile come as commodity shocks from the war in Ukraine rattle the global economy and contribute to inflation, prompting rich nations to start raising interest rates,” reads the article from International Business Times.

Of the countries covered in June’s FCIB Credit & Collections survey, Brazil had the highest average number of days beyond terms at 26.7, with 30% of participants indicating an increase in payment delays. The most common causes of those delays are supply chain/shipping issues (55%) and cash flow issues (30%).

“In Brazil, maybe because of our fiscal situation, rates were raised more than in other countries,” André Carvalho, director of research at Bradesco BBI, told Institutional Investor. “And I think this has caused a misalignment of money flowing out of equities, which is more pronounced in Brazil.”

Please take a few minutes to participate in this month’s Credit & Collections survey, covering Argentina, Germany, Peru and Poland.

Week in Review Editorial Team:

Diana Mota, Editor in Chief

Annacaroline Caruso, Editorial Associate