Aurelia Butler

The EU could provide alternative routes for almost all of Ukraine’s grain exports following Russia’s decision to stop their passage through the Black Sea, the bloc’s agriculture commissioner said.Janusz Wojciechowski said on Tuesday that the EU should expand its “solidarity lanes” — road, river and rail links first established in 2022 after Russia’s full-scale invasion of Ukraine — to enable more food from Ukraine and Moldova to transit to EU ports for onward shipment to Africa and Asia.“We are ready to export by solidarity lanes almost everything Ukraine needs [to send] . . . about 4mn tonnes a month. We achieved this volume in November 2022,” he told a press conference in Brussels after a meeting of agriculture ministers. The EU solidarity lanes currently carry about 60 per cent of Ukraine’s grain exports, with the remaining 40 per cent going via the Black Sea.Russia’s decision earlier this month to withdraw from the UN-backed Black Sea Grain Initiative, which guaranteed safe passage for ships using the route, has sent prices rising.Wheat prices climbed to a five-month high on Tuesday, after Russia expanded its attacks to ports that ship grain by river to Romania and destroyed a grain silo in Odesa. Wheat futures traded in Chicago increased as much as 2.6 per cent to $7.7725 per bushel, their most expensive since mid-February.Russia and Ukraine between them produce about 30 per cent of the world’s traded wheat, raising concern over shortages.Wojciechowski said transit costs, such as those for hiring trains and trucks, for Ukrainian grain were too high and that the EU should subsidise them, otherwise customers would buy cheaper Russian products instead. He also backed a Ukrainian demand to move customs and health checks for food cargoes from the EU border to its ports to reduce queues and costs.“Work is intensifying to increase the capacity of solidarity lanes and also to make sure we can streamline the procedures and facilitate trade flows,” said Miriam Garcia Ferrer, European Commission trade spokeswoman. Lithuania has suggested opening a northern route from Poland to Baltic ports. Vilnius has asked the commission in a letter to invest in the route, which it said could ship 25mn tonnes of grain annually. Kęstutis Navickas, the Lithuanian agriculture minister, told reporters that European rail companies should pay to upgrade the necessary infrastructure. The railway gauge in Ukraine is different to Poland’s, so cargo has to be moved from one train to another at the border. Kyiv has also written to Brussels asking for financial support and the transfer of the customs and health checks. Since the war began in February 2022, 41mn tonnes of grain, oilseeds and related products have left Ukraine through the solidarity lanes, compared with 33mn through the Black Sea. Wojciechowski also said the commission would next month discuss a request by Poland, Bulgaria, Hungary, Romania and Slovakia to extend trade curbs on Ukrainian grain imports. The five frontline states say a glut of the crop has depressed prices for their own farmers and exhausted storage space — although the Polish farm commissioner said much had now been moved on.They lifted an import ban after the commission agreed that Ukrainian shipments of five types of grain would only transit through the countries en route to other destinations.The five countries want to extend the restrictions to soft fruit and other crops and prolong the measures beyond their scheduled expiry on September 15.Robert Telus, Polish agriculture minister, has faced calls from farmers to step down over the issue, and the government is anxious to calm them before national elections in the autumn.But German agriculture minister Cem Özdemir criticised the five countries for proposing the curbs despite taking €100mn of EU money as compensation to farmers for lost income. “It’s not acceptable that states receive funds from Brussels as a form of mitigation, and then still close their borders,” he told reporters.Luis Planas, Spain’s agriculture minister, who chaired Tuesday’s ministerial meeting, said there were “mixed feelings” about the idea. Ukraine’s president Volodymyr Zelenskyy attacked the move in his nightly address on Monday. “Any extension of the restrictions is absolutely unacceptable and outright non-European. Europe has the institutional capacity to act more rationally than to close a border for a particular product,” he said. Additional reporting by Roman Olearchyk in Kyiv and Raphael Minder in Warsaw More

The UK was an early and eager adopter of inflation-linked bonds. It used to boast that tying debt interest payments to the retail price index (RPI) underlined its inflation-busting credentials. The policy has not aged well. “Linkers” account for a quarter of the UK’s debt. Rampant inflation is set to push this year’s interest costs to the highest levels in the developed world.Debt interest will be a tenth of government spending — or £110bn — in 2023, according to Fitch. The UK will have to sell more bonds to cover the deficit. The Debt Management Office expects to issue a near record £241bn worth of gilts in the coming financial year. What is the impact of selling so much debt for investors? Curiously, it may make little difference. Some domestic investors have regained a taste for gilts after last year’s rout. Bank of England governor Andrew Bailey has restated his commitment to bringing down inflation. The UK’s largest asset manager Legal & General recently said it was buying bonds. It expects fixed income to benefit from a renewed appetite for safety. The main driver of bond yields has historically been interest rate expectations rather than supply. Forecasts drove the vast majority of the 300 bps increase in 10-year gilt yields since February 2022, according to BoE analysis. That suggests that the end of quantitative easing has had little effect on yields.Yet some nervousness is justified. Many corporates are transferring defined benefit pension schemes, historically a big driver of bonds demand, to insurers. These typically invest in a wider range of assets. Private foreign investors already hold more of UK debt — 25 per cent — than most other G7 countries. Higher interest rates are feeding through to debt servicing costs more than twice as rapidly as in the past. In 1981, the last time the RPI was in double figures, the UK had only just started to issue index-linked gilts. Historically, inflation helped governments lighten their debt burden. This time it is having the opposite effect. That underlines the incentive to vanquish it — a vindication of sorts for advocates of linkers.The Lex team is interested in hearing more from readers. Please tell us what you think of gilts in the comments section below More

The risk of a crash landing for the global economy has receded, the IMF’s chief economist said as the multilateral lender predicted 3 per cent growth this year. In an interview with the Financial Times, Pierre-Olivier Gourinchas said the economic outlook had improved since the multilateral lender last published its projections in April amid a bout of banking sector stress. “Things are moving in the right direction,” he said, adding there was now less danger of global growth slipping to 2 per cent or below, since the most acute financial risks had abated.The IMF considers that the UK would now avoid recession, boosted by strong spending by consumers. But Gourinchas cautioned that advanced and emerging economies were not “out of the woods yet”, since central banks’ efforts to temper stubbornly high inflation would still weigh heavily on growth.Tuesday’s forecast of 3 per cent growth for the global economy is 0.2 percentage points higher than the fund predicted three months ago. It follows a stronger than expected first quarter, but is a step down from last year’s 3.5 per cent and below historical averages. The IMF expects growth to remain weak over the next five years — partly because of poor gains in productivity. Gourinchas said the odds of a soft landing in the US — in which inflation is reduced without causing excessive job losses — had increased as price pressures had eased in recent months. The consumer price index is now running at an annual pace of 3 per cent.The fund was less optimistic on Germany’s economic prospects, forecasting a 0.3 per cent contraction this year — down from a smaller 0.1 per cent contraction in April, and maintained its call that China’s economy would grow by a modest 5.2 per cent in 2023. Debt distress across developing economies remains a top concern despite emerging countries on the whole remaining “resilient” to financial market volatility.A lingering fear is that, despite sharp falls in headline rates, strong labour markets and potent consumer demand will make inflation hard to fully root out. That will mean central banks will have to keep tightening their monetary policy screws. Gourinchas also said in a press briefing on Tuesday that the collapse of the UN-brokered deal to export Ukrainian grain across the Black Sea was likely to put “upward pressure” on global food prices. Ukraine is one of the world’s biggest grain exporters, but the deal to enable exports to continue throughout the war with Russia fell apart earlier this month after Moscow pulled out. On the whole, Gourinchas anticipated little reprieve from rate-setters, even as the era of “outsized hikes” comes to a close. “We are nearing the peak of the hiking cycle, but we’re not quite there yet,” he told the FT. “We’re going to see central banks holding where they are until they are confident enough that the economy is on the right track.”Further rate rises are expected from the US Federal Reserve, the European Central Bank and the Bank of England over the coming days, and the IMF on Tuesday urged rate-setters to avoid any “premature easing”. Core inflation measures, which strip out changes in food and energy costs, will only very slowly return to the longstanding 2 per cent targets most monetary authorities home in on.In 2023, the fund reckons on an annual average basis, about half of economies will not have a decline in core inflation. For advanced economies, it upgraded its near-term estimates compared with April’s figures by 0.3 percentage points in 2023 and 0.4 percentage points in 2024 to 5.1 per cent and 3.1 per cent, respectively.

Inflation is set to remain above target in 89 per cent of economies with such thresholds next year.An added risk is yet another flare-up in financial markets that forces the authorities to step in. If central banks keep interest rates higher for longer than investors currently expect, “you might have at some point the market realising that [its expectations of borrowing costs are] a bit misaligned”, Gourinchas said. At the moment markets expect central banks such as the Fed to begin cutting rates around the turn of this year. If those bets prove incorrect, “that would lead to some repricing and then you could get a chain of events that creates some volatility”. More

WASHINGTON (Reuters) – With the Federal Reserve steaming toward another interest rate hike this week, policymakers face a choice over how much weight to put on recent economic data that has made hoped-for outcomes on inflation and unemployment seem more likely while also posing a risk the economy is too strong to keep prices in line.Since the U.S. central bank’s policy meeting in June, inflation has slowed more than expected towards the Fed’s 2% target, with many analysts arguing a cycle of moderating price hikes is underway and should continue without further rate increases beyond the quarter-percentage-point hike broadly expected to be announced on Wednesday.But the sense of optimism in a Fed-orchestrated ‘soft landing’ – a scenario in which inflation falls, unemployment remains relatively low and a recession is avoided – has also buoyed financial markets in ways that could counter the central bank’s aims, something policymakers are likely to guard against with a still-tough inflation-fighting message despite where the data have been pointing. The Fed “does not want to be head-faked by the recent deceleration in inflation and declare victory too soon,” Diane Swonk, chief economist at KPMG, wrote on Monday, concluding that the central bank will leave its options open for further increases in borrowing costs. “Financial markets have consistently front-run the Fed … That has already eased credit conditions and could stoke an acceleration in growth.”The rate-setting Federal Open Market Committee is expected to lift its benchmark overnight interest rate to the 5.25%-5.50% range when it releases its latest policy statement at 2 p.m. EDT (1800 GMT) on Wednesday. Fed Chair Jerome Powell will hold a press conference shortly after to elaborate on the decision.BALANCING RISKSIn the six weeks since their June 13-14 meeting, Fed policymakers have digested data offering a mirror image of what they faced a year ago. At that time, six months of contracting economic activity seemed to show a recession developing, prices were rising fast, and central bankers had accelerated rate hikes to a pace expected to make any downturn even worse. Now the issue is how much blue sky to acknowledge. Last summer’s Fed meetings, were conducted in an atmosphere of deep concern about a surge in inflation to four-decade highs and the economy’s fate as the Fed tried to expunge it. Since then the unemployment rate has been little changed at 3.6%, growth has run consistently above trend, and still the Fed’s preferred measure of inflation has fallen from 7% in June of 2022 to 3.8% as of this past May.That’s still nearly double the central bank’s 2% target, and some officials worry it will prove increasingly difficult to cover the remaining ground if the economy remains as resilient as it currently appears.Signs of a slowdown are there, to be sure, and some policymakers expect more weakness is coming – an argument for caution in considering further rate increases. But with monthly job growth still above 200,000 as of June and wage increases outpacing inflation, households may be able to keep spending and foil the consumption slowdown some Fed officials feel is needed to wring out the rest of the excess inflation.Indeed, the International Monetary Fund on Tuesday raised its outlook for U.S. economic growth this year, saying the resilient consumption evident in the first part of 2023 was “a reflection of a still-tight labor market that has supported gains in real income and a rebound in vehicle purchases.”NO ‘SUDDEN STOP’U.S. stock markets have been rising and other measures of financial conditions show some conditions loosening even as the Fed tries to restrict the economy. In fact, a new central bank financial conditions index shows peak tightness may have been hit late last year.Over the course of the second quarter, an Atlanta Fed “nowcast” of economic growth for that three-month period has jumped from a 1.7% annualized rate to 2.4% on the basis of strengthened consumer spending, stronger business investment, and a larger contribution from government spending.The change crossed a significant line, moving from just below the Fed’s 1.8% estimate of trend growth – and a level that should thus continue to temper inflation – to significantly above it. The first estimate for second-quarter gross domestic product will be issued on Thursday, with economists anticipating a 1.8% rate of growth versus 2.0% in the first quarter.Still, unless there’s a sharp drop in activity soon, it could mean Fed officials have underestimated the economy’s strength and may become doubtful about the prospect of a continued decline in inflation. Fed officials in June projected GDP would grow just 1.0% in 2023, an outlook that “basically requires a sudden stop in the economy in the second half of the year,” wrote Tim Duy, chief U.S. economist for SGH Macro Advisors. “We already have enough visibility on the third quarter to know that isn’t happening.”That will likely keep the door open to more rate increases – for now. U.S. central bankers were caught out in 2021 when their initial analysis of rising inflation attributed it to forces, like a supply shock and pandemic-era spending, that they thought would pass with time. Even if that now appears to be happening two years later, they’ll likely be slow to take the win.”It’s not clear yet how much growth the Fed will tolerate during a period of softer inflation numbers,” Duy said, with the focus possibly shifting towards the evolution of the real economy alongside the data on prices.”We think that Powell will lead market participants to broaden their focus beyond the inflation numbers by explaining that for the Fed to be confident it will restore price stability, it needs to see further cooling in demand evidenced by GDP growth slowing substantially, softer job growth, and further downward pressure on wage growth.” More

WASHINGTON (Reuters) – The International Monetary Fund on Tuesday called for better coordinated efforts to address the causes of climate change, warning extreme weather is posing material risks to countries globally, especially developing economies already saddled with high debts.IMF Chief Economist Pierre-Olivier Gourinchas said the case of Argentina, which has seen a prolonged financial crisis worsened by a ferocious drought that reduced agricultural exports by an estimated $20 billion this year, showed how profoundly weather events could exacerbate existing strains.Argentina on Monday set new weaker trade-related exchange rates as it raced to reach an agreement with the IMF and bring forward billions of dollars in disbursements from its $44 billion IMF program.Some countries were finding it “very, very difficult” to maintain market access in the current environment, with interest rates and debt service costs climbing, Gourinchas said in an interview with Reuters about updates to the IMF’s global outlook. The global lender on Tuesday raised its 2023 global growth estimates slightly, but warned that low productivity growth and sluggish trade meant growth would likely level off at around a historically low 3.0% for years.A big worry, it said, was the slowing rate at which developing countries are catching up to advanced economies, and their exposure to greater risk in the event of financial market volatility that could further boost the U.S. dollar’s value.”In the case of Argentina, clearly one thing that doesn’t help at this point for the growth outlook is they are facing a severe drought that is affecting agricultural output,” Gourinchas said. “When you’re in a situation that is fiscally fragile to start with, where you don’t have a lot of room, and you get bad news … then of course the situation becomes more difficult.”Gourinchas said extreme weather events, including heat waves facing Europe and other regions, and this year’s El Nino weather pattern, which could lead to heavy rainfall or temperatures, would affect crop yields and the ability of people to work.”Clearly this increasing frequency of extreme weather events … is making it especially urgent that we tackle the root cause of climate change,” he said. “More needs to be done.”Gourinchas said any fragmentation of the global economy into disparate blocs as a result of Russia’s war in Ukraine would be disruptive, but would hit emerging market and developing economies particularly hard.”We need to have a multilateral approach to climate that can only be dealt with in a global sense – making sure that all the countries do an effort that is proportionate to their responsibilities and to their means,” he said, although he conceded reaching that goal would be complicated.Gourinchas said emerging market economies also faced a “quite serious” risk of disruptions causes by any further financial market volatility, or an escalation in Russia’s war in Ukraine.”If we have a sharp appreciation of the dollar, if we have a sharp tightening of financial conditions, a drop in risk appetite … then that could be devastating and could ripple into many emerging markets,” he said.The IMF last month announced it had hit its target of making $100 billion in special drawing rights – the fund’s own special reserve currency – available for vulnerable nations. But wealthy nations have yet to come good on climate finance they promised as part of a past pledge to mobilize $100 billion a year, a key stumbling block at global climate talks. More

The short-video app is seeking to replicate the American success of Chinese shopping platforms Shein and Temu and will be responsible for the storage and shipping of items on behalf of manufacturers and merchants in China, the report said. TikTok did not immediately respond to a Reuters request for comment.The reported move comes at a time when TikTok is facing heightened scrutiny from U.S. officials over concerns about data security. The company is fighting to prevent a ban in the country after lawmakers introduced a bill that would grant the Biden administration authority to ban apps that pose security risks. (This story has been refiled to add source in the headline) More