Aurelia Butler

1. U.S. inflation data dueSticky, elevated, stubborn. However you’d like to call it, higher-than-normal price growth in the U.S. looks set to remain in place for the time being.Economists predict that the consumer price index, due out today, will show that headline inflation in the world’s largest economy held steady at 5% on an annualized basis in April. The core reading, which strips out volatile items like food and energy, is seen slowing slightly to 5.5% year-on-year – a level still well above the Federal Reserve’s 2% target.The data will likely have an impact on expectations for the Fed’s future interest rate decisions. The U.S. central bank has hinted that it may push pause on a year-long tightening campaign at its next meeting in June, although Fed Chair Jerome Powell noted that it is “prepared to do more” if further policy restraint is necessary.2. Futures choppy ahead of CPI releaseU.S. stock futures pointed lower in choppy trading on Wednesday as investors await the unveiling of the monthly inflation data at 8:30 ET.At 05:00 ET (09:00 GMT), the Dow futures contract was down by 38 points or 0.11%, S&P 500 futures traded 14 points or 0.14% lower, and Nasdaq 100 futures shed 31 points or 0.24%.All three of the indexes dipped in the prior session, with Wall Street’s attention split between the CPI numbers and the ongoing political wrangling in Washington over the U.S. debt ceiling (see below).3. Debt ceiling talksAlong with inflation, one of the most pressing issues facing the U.S. economy is the bitter fight playing out in Washington over raising the country’s $31.4 trillion debt ceiling.U.S. President Joe Biden held talks with House Speaker Kevin McCarthy and other lawmakers at the White House late on Tuesday, but were unable to forge an agreement. Both Biden and McCarthy, who are at odds over federal spending plans, came out of the meeting promising that their respective aides would stay in touch every day.The stakes could scarcely be higher. Lawmakers face a looming deadline to reach a deal to lift the debt limit or risk a potentially catastrophic default. Estimates vary on when exactly this so-called “X-date” lands, although it is widely expected to fall early next month.4. Disney headlines earnings batch”Guardians of the Galaxy: Vol. 3″ may have raked in $118.4 million in domestic ticket sales for Disney (NYSE:DIS) in its opening weekend, but the focus for many observers of the entertainment giant is on its performance away from the big screen.Analysts will be keen to get a sense of how Disney’s traditional television offerings are faring as a broader economic slowdown threatens to weigh on advertising. Competitors like Warner Bros. Discovery Inc. (NASDAQ:WBD) and Paramount Global (NASDAQ:PARA) already reported big drops in traditional TV ad revenues last week.Disney’s streaming business will also be under scrutiny. Investors will be particularly eager to see progress in Chief Executive Robert Iger’s sweeping restructuring of the company and how it is helping to make the service profitable.Other corporate names set to issue their latest earnings today include insurance group Manulife Financial Corp (NYSE:MFC) and fertilizer firm Nutrien (NYSE:NTR).5. Oil prices dropOil prices slipped on Wednesday, as traders braced for the U.S. inflation data and eyed a surprise jump in oil inventory levels.At 05:03 ET, U.S. crude futures were 1.52% lower at $72.59 a barrel, while the Brent contract fell by 1.47% to $76.30.A weekly estimate from the American Petroleum Institute, cited by Reuters, showed that U.S. crude inventories unexpectedly jumped by 3.618 million barrels in the week ended on May 5, rebounding from a decline of 3.939 in the prior week. The figure, which was previously forecast to dip during the period, has created fresh worries over demand in the U.S. – the world’s largest oil consumer. More

It’s hard to say which inflation came first — for chickens or for eggs — but it’s definitely been worse for the hard-shelled reproductive body produced by the domesticated junglefowl.According to the latest BLS report, egg prices were (unadjusted) 36 per cent higher in March compared to the same period last year, while the cost of a fresh whole chicken was only up 8.9 per cent.However, month-on-month (and seasonally-adjusted) the price of an egg collapsed 10.9 per cent in March, and the latest National Egg Review from the USDA has revealed the dire state of the market (H/T @riddleofsands):

It’s almost as if eggs were the edible version of an unprofitable SoftBank-backed shitco. The US government agency spells out the fowl dynamics, with California once again ground zero for another crisis. New York egg prices are steady. California and regional egg prices are 20 cents lower for Jumbo, down 18 to 36 cents for Extra Large, 18 to 44 cents lower for Large, down 16 to 38.5 cents for Medium, and 18 cents lower for Small. The undertone is steady to weak. Offerings remain moderate. Supplies are moderate to heavy. Demand into all channels is light to moderate with some noting improvements. Market activity is slow to moderate. Breaking stock offerings and demand are light to moderate. Light type fowl offerings are moderate to heavy; processing schedules are normal to less than normal.. . . All liquid egg prices are too few trades to report. The undertone is weak for whole, whites, and yolk. Demand is light to instances moderate with increased interest noted for yolk. Offerings are light to moderate. Market activity continues slow to at times moderate. . . . Prices of frozen product ranges are lower for whole, steady to lower for whites, steady to higher for sugar yolk, steady for salt yolk. The undertone is in a range of steady to weak. Demand and offerings are light to instances moderate. Supplies are light. Market activity is slow to moderate. . . . Dried whole egg prices are lower for whole, steady for yolk, and too few to report for albumen. The undertone ranges about steady to mostly weak. Demand is moderate to fairly good for albumen, moderate for whole and light to instances moderate for yolk. Offerings are light to at times moderate. Supplies are usually light to very light. Market activity is slow to moderate with industry closely watching current market conditions. The USDA is clearly trying to avoid panicking people with its dry bureaucratese language, but make no mistake — the egg bubble has burst, and deflation is here. We were warned though:A major Fed rate hike risks deflation— Elon Musk (@elonmusk) September 9, 2022 More

LONDON (Reuters) – “Think it possible you may be mistaken”, England’s leader Oliver Cromwell demanded in a public letter to the Church of Scotland ahead of the battle of Dunbar in 1650.¹Cromwell is not known to history for self-doubt or toleration, and the letter was written when he was at the head of an invading army calling on his opponents to question their own beliefs rather than examining his own.Nonetheless, the warning to allow for the possibility of error or the unexpected has come to be known to modern statisticians and forecasters as “Cromwell’s rule”.In essence, predictions should be wary of assigning a prior probability of 0% (impossible) or 100% (certain) to anything except to statements that must be logically true.Cromwell’s rule plays an important formal role in Bayesian statistics but it is important for any exercise in prediction and analysis.Every forecaster should consider the possibility of error – what evidence would make me change my view about the world or what will happen next?SOFT LANDING CONDITIONSI have written elsewhere the global economy is on course for a significant mid-cycle slowdown if not a cycle-ending recession.A poisonous cocktail of capacity constraints, persistent inflation, rising interest rates and growing caution among consumers and businesses is likely to result in a fairly hard landing for the economy.But what would falsify that prediction and lead to a soft landing, or no landing at all, with the economy resuming growth near its long-term trend later this year and extending through 2024 and even 2025?What would make this current business cycle slowdown more like the soft patches in 2015/16 or 1997/98 both of which were followed by more years of expansion?The first condition is an early end to interest rate increases by the U.S. Federal Reserve and other major central banks, or even some modest reductions.In 2015/16, the U.S. central bank postponed a tightening of already ultra-loose monetary policy to support the economy through a slowdown.In 1998, the U.S. central bank cut its target federal funds rate three times in three successive months by a total of 75 basis points “to sustain economic growth”.But in both instances, the rate of consumer price inflation was much lower than now and described by policymakers as below target or contained.Core consumer prices excluding volatile food and energy items were rising at an annual rate of around 2.4% in late 1998 and 2.2% in early 2016.The second condition is therefore a timely deceleration in the rate of price increases towards central banks’ long-term targets, in the case of the Federal Reserve towards 2% per year or a little faster, depending on the measure used.This would allow the Federal Reserve and other central banks to stop raising interest rates and be ready to cut them pre-emptively if the economy shows signs of weakening significantly.Decelerating inflation likely requires the price of petroleum and other major industrial commodities and foodstuffs to remain near current values and avoid any further price spikes.The third condition is thus that oil, other commodity markets and freight systems avoid any sudden re-acceleration of consumption or further disruptions to production and trade.The fourth condition is that the recent acceleration in consumer price inflation must not become embedded in wage-setting and price-setting behaviour to avoid self-sustaining wage-price and price-price spirals.The rate of price and wage increases must slow despite relatively high rates of capacity utilisation and low unemployment, ensuring a “high pressure” economy does not become a “high inflation” one.The fifth condition is that businesses and households continue hiring, investing and spending, despite the inflationary squeeze on margins and real wages and the outlook for slower economic growth.The economy must avoid narratives about a severe slowdown or a recession causing a widespread pull back in spending that becomes self-fulfilling as households and businesses try to increase saving and reduce cash outflows.The sixth condition is that the terms of bank lending and other capital markets must not tighten too far in response to the recent banking crisis to avoid a credit-driven economic downturn.If all those other conditions are satisfied, the seventh condition is the economy must find or create sufficient new capacity to sustain a period of renewed growth without sparking renewed inflation.More capital, labour and energy resources would have to be mobilised despite already high rates of utilisation, and ways would have to be found to accelerate productivity growth.BALANCE OF PROBABILITIESFrom this list of conditions, it is clear there is a pathway for the economy to achieve a soft landing in 2023, avoiding any form of recession, with growth re-accelerating in 2024 and 2025, but the path is likely a narrow one.Multiple conditions would need to be satisfied, and none violated, for a soft landing to occur. There are more paths that lead to a hard landing or recession.For that reason, a probabilistic approach to forecasting makes a hard landing or recession more likely or more reasonable as a central scenario at the moment.The soft landing scenario is so tricky to pull off and therefore so improbable it has been called “immaculate disinflation” by some forecasters. Nevertheless, the probability of a soft landing is far from zero.If it happened, the economy would begin 2024 with high levels of employment and capacity utilisation; moderate levels of business inventories (including petroleum inventories); and continued modest growth in consumer spending and business investment.¹ “Britain in Revolution, 1625-1660”, Woolrych, 2002.Related columns:- Recession or not, U.S. economy is losing momentum (May 5, 2023)- Hard-ish landing has already arrived for U.S. manufacturers (April 4, 2023)- Persistent inflation sharpens Fed’s interest rate dilemma (March 14, 2023)- Recession now or later? Unenviable alternatives for 2023 (January 26, 2023)John Kemp is a Reuters market analyst. The views expressed are his own More

TOKYO (Reuters) – Japan’s economy likely grew in January-March at the fastest pace in three quarters, as spending in the services sector offset soft business activity, a Reuters poll showed.Japan has so far been spared major impact from deteriorating global economic conditions thanks in part to the services sector enjoying a catch-up recovery following the country’s delayed reopening from the COVID-19 pandemic, and as the central bank maintains an ultra-loose monetary policy.The world’s third-largest economy likely expanded by an annualised 0.7% in the first three months of 2023, showed the median of 17 economist estimates. Such a growth rate would be the fastest since the 4.7% of April-June 2022 and would follow expansion of just 0.1% in October-December.”While accelerating inflation and a slowing global economy have brought downward pressure, a national travel subsidy and eased border control (for foreign visitors) helped drive up services demand,” said senior economist Saisuke Sakai at Mizuho Research and Technologies.Private consumption, which makes up the majority of Japan’s gross domestic product (GDP), likely grew 0.4% in January-March, versus 0.3% in the previous quarter, said economists polled by Reuters. Spending on goods has stalled due to a four-decade-high inflation rate, but a flock of tourists both domestic and international supported overall consumption growth.By contrast, capital expenditure likely contracted for a second month, by 0.4%, the poll showed. Depressed external demand also likely wiped 0.2 percentage point from overall GDP growth. A COVID-19 surge in China earlier this year and global monetary tightening have slashed overseas demand for Japanese products, making manufacturers hesitant to ramp up investment, analysts said.Looking ahead, though services spending is set to further improve, slowing overseas growth will curb Japan’s recovery potential, said Mizuho’s Sakai, adding financial turmoil around Western banks poses further downside risk.The government will release preliminary January-March GDP data at 8:50 a.m. on May 17 (2350 GMT, May 16). More

The country’ food shipments, which account for 14.6% of the total, increased 10% year-on-year to 346 billion baht in January-March, said the group with representatives from the Thai Chamber of Commerce, the Federation of Thai Industries and the National Food Institute.Food exports, however, might see a drop in the second quarter due to a high base last year, before rebounding in the second half of the year, Anong Paijitprapapon, president of the National Food Institute, told a news conference.”Food shortages throughout the supply chain have increased demand for food products in countries whose economies are recovering from COVID,” she said.Concerns about food security also boosted demand, Anong said, adding Thailand’s food exports were in 15th place in the global market with a market share of 2.25%.Food exporters were still concerned over the strength of the baht and higher power costs, the group said.”We want the central bank or the next government to ensure that the baht is competitive, otherwise it will be quite a big problem (for exporters)” said Poj Aramwattananont, vice chairman of the Thai Chamber of Commerce.The baht has appreciated by 2.7% against the dollar so far this year, becoming Asia’s second best performing currency after Indonesia’s rupiah.($1 = 33.85 baht) More

TOKYO (Reuters) – China will be the elephant in the room at this week’s meeting of Group of Seven (G7) finance leaders, who will seek to diversify supply chains away from the country — but also try to get Beijing’s cooperation in solving global debt problems.The conflicting goals come on top of vulnerabilities the G7 rich democracies face due to their heavily reliance on China, which is the world’s second-largest economy and the second biggest external holder of U.S. debt.The heightening risk of a U.S. debt default, which could jolt financial markets already jittery after recent bank failures, will overshadow the three-day meeting kicking off on Thursday in the Japanese city of Niigata.While Treasury Secretary Janet Yellen will join the G7 finance leaders’ talks, U.S. President Joe Biden on Tuesday signalled the chance of cancelling his trip to Hiroshima for next week’s summit if the debt issue is not resolved.”The dollar is regarded — and Treasury securities –as the bedrock safe asset in the entire global financial system,” Yellen said on Monday, in a warning of the damage a default could inflict on the U.S. economy and financial markets.”It’s trusted, and it is the ultimate safe asset and a failure to raise the debt ceiling, impairing the U.S. credit rating, would put that at risk. So that is a real concern.”The U.S. debt crisis is a headache for Japan, which is this year’s G7 chair and the world’s biggest holder of U.S. debt.Other key themes to be discussed at this week’s G7 gathering include ways to strengthen the global financial system, steps to prevent Russia from circumventing sanctions over its invasion of Ukraine, and global economic risks such as stubbornly high inflation, Japanese officials say.Japan hopes to issue a G7 joint statement after the meeting, they added.CHINA SLOWDOWN LOOMSAs host, Japan has drawn up a long list of other themes that will likely leave policymakers little time to enjoy Niigata’s prized rice wine, many of which are linked to China.Among them is a plan to agree on an ambitious statement for diversifying supply chains “away from countries like China” through partnerships with low and middle-income nations.Underscoring its desire to win over the “Global South,” Japanese Finance Minister Shunichi Suzuki invited this year’s African Union chair Comoros to an outreach meeting to be held on Friday.Five more countries were invited to the outreach including Brazil, India and Indonesia – but not China – although emerging nations’ debt problems will feature high on the agenda.On the other hand, Tokyo is courting China to join a creditor nations’ meeting it initiated to resolve Sri Lanka’s debt. Beijing attended the first round of talks on Tuesday as an observer, not as an official participant.As the world’s largest official bilateral creditor, China should participate in meaningful debt relief for countries facing problems, but it has served for too long as a “roadblock” to necessary action, Yellen said last month.There was uncertainty on whether G7 can convince emerging economies to help build supply chains less reliant on China, with many of them having been hit by aggressive U.S. rate hikes that have increased their dollar-denominated debt burden.”The debt problems of emerging nations are becoming increasingly serious due in part to the strong dollar,” said Takahide Kiuchi, an analyst at Nomura Research Institute.”The agenda of talks show how G7 is becoming increasingly politicized in nature, with an emphasis on countering China.”For the G7 central bank chiefs, inflation will likely remain the key issue. Many of their economies are facing an inflection point, with past aggressive interest rate hikes beginning to cool growth and unsettling the banking system.The International Monetary Fund last month trimmed its 2023 global growth outlook and warned a severe flare-up of financial system turmoil could slash output to near recessionary levels.Data released on Tuesday showed China’s imports contracted sharply and export growth slowed in April, dashing policymakers’ hopes that a strong rebound in China’s economy will offset an expected slowdown in other parts of the world. More

The conflict in Sudan has dealt a fresh blow to China’s strategy of financial engagement with Africa, putting at further risk loans from Beijing worth at least $5bn.Sudan has been a significant recipient of Chinese financing on the African continent, where Beijing ranks as the largest bilateral lender, according to figures from the AidData lab at William and Mary college in the US. The power struggle between two rival generals that erupted last month has brought war to the capital Khartoum and displaced hundreds of thousands of Sudanese people. It has also been a setback for China’s strategic goals in the Horn of Africa, where Beijing has sought to bolster its influence by funding infrastructure.Sudan’s outstanding debts to China stood at $5.12bn in early 2022, according to Sudanese central bank documents. But analysts said this did not include oil prepayment facilities, which are in effect loans from Chinese entities that are supposed to be repaid with shipments of oil.The outstanding value of such loans for oil is unclear, but may add billions to the total debt stock. Hamid Suleiman, then-deputy minister of energy and mines, was quoted in news reports in 2020 as saying that Sudapet, the state-owned Sudanese oil group, owed an outstanding $2.5bn to Chinese state oil company CNPC.Chinese state-owned entities extended loans worth $15.5bn to Sudan in the decade to 2020, said Bradley Parks, executive director of AidData, which keeps a comprehensive database on China’s global lending. These entities lent $4.7bn to South Sudan, which split from Sudan in 2011, over the same period, AidData shows.Chinese and Sudanese workers celebrate the completion of an oil pipeline in 2010, built by a subsidiary of a Chinese energy group © Tong Jiang/Imagine China/APThe Sudanese conflict has thrown off course an IMF-backed reform programme and further jeopardised Khartoum’s ability to repay a host of creditors, including China, according to analysts.Sudan is already in arrears on much if of its external debts, including those to Chinese entities, IMF figures show. Overdue loan repayments and late fees to external creditors were worth more than 140 per cent of its gross domestic product, said Parks.Beijing’s debt tribulations in Sudan are repeated across much of Africa, where Chinese state-owned lenders are suffering a series of defaults. This represents a significant shift from the mood seven years ago, when China’s president, Xi Jinping, referred to Africa as “the fastest growing and most promising continent in the world”.Almost 80 per cent of total lending to Africa by Chinese state entities is to countries in financial distress, according to a recent paper published by the National Bureau of Economic Research.Zambia has already defaulted, while Angola, Ethiopia and Kenya — among the big African borrowers of Chinese money — are all struggling to honour external debt obligations.Chinese creditors’ willingness to write off loans or stump up rescue credit remains largely untested. Beijing appointed a “special envoy” to the Horn of Africa region last year who has been working largely behind the scenes to advance peace and the idea of a “shared future” with China.But one Chinese government adviser, who spoke on condition of anonymity, said that in Sudan’s case big gestures were unlikely — at least for the foreseeable future. “Sudan is too complicated right now,” he said. IMF managing director Kristalina Georgieva told a recent roundtable in Nairobi: “The moment there’s a meaningful ceasefire [in Sudan] we will step forward to see what can be done on the side of financing.”The debt problems sweeping Africa have mainly been caused by the sharp rise in global interest rates that followed the coronavirus pandemic and Russia’s war in Ukraine. This, along with weak domestic currencies and a series of local factors, has nudged several countries towards default as they struggle to service their debt obligations.“The overall situation is likely to worsen over 2023 and limit the ability of many African nations to raise the necessary finance both to deliver broader social improvements for their populations and respond to climate change,” according to a recent Chatham House paper.

China appears to be cautious about any potential role as a peacemaker in Sudan, despite its financial involvement. “I think China will make positive statements for peace and try to help the process but we don’t know the parties concerned that well,” said the Chinese government adviser. “Other countries such as the Europeans know the main actors in the Sudan conflict a lot better.”However, Deborah Brautigam, director of the China Africa Research Initiative at Johns Hopkins University, pointed to China’s hectic “shuttle diplomacy” that helped keep the oil flowing following the split between South Sudan and Sudan in 2011.“Sudan is where Chinese diplomats first got involved in shuttle diplomacy and, at that time, they got grudging praise from their American counterparts,” she said. “I wouldn’t be surprised if they returned to try to help sort out these gnarly problems.” More

SYDNEY (Reuters) – Australia’s Labor government said on Wednesday the billions in cost-of-living relief unveiled in the federal budget for families and businesses will not worsen inflationary pressures and put more pressure on the central bank to lift rates further.Australia on Tuesday boasted the first budget surplus in 15 years after its coffers swelled from bumper mining profits and a strong job market, with unemployment now at near 50-year lows of 3.5%, boosting income tax while curbing welfare payments.But inflation sits at near 30-year highs of 7.0%, forcing the government to announce relief measures aimed at lowering power bills and easing pressure on consumer prices.”We wanted to take pressure off families whilst we didn’t put pressure on inflation,” Prime Minister Anthony Albanese told ABC Radio. “We make no apologies for the fact that some of the most vulnerable Australians are people we’re providing assistance for in this budget.”The budget includes a A$14.6 billion ($10 billion) cost-of-living plan, set to deliver up to A$3 billion in direct energy bill relief for low-income families and small businesses. It also has set aside more money for unemployment allowances and other income support payments.Treasurer Jim Chalmers brushed aside concerns the support measures could stoke inflation, saying all the relief would not impact the economy at the same time. “Broadly across the economy, we don’t expect (the support) to be adding to these inflationary pressures,” Chalmers told ABC television, adding some measures will be “actually taking some of the sting out of inflation.”Chalmers says his budget is restrained on spending, while also giving some relief, after the Reserve Bank of Australia (RBA) last week stunned markets with a rate rise rather than the pause expected by markets. The RBA has warned that risks to inflation were on the upside given low productivity growth, rising energy prices and a surge in rents.($1 = 1.4743 Australian dollars) More