Aurelia Butler

Investing.com — The Suez Canal Authority said it had refloated a ship that ran aground earlier on Monday, avoiding a repeat of the blockage that badly hit global trade flows in 2021.The MV Glory, a 225-meter, Liberian-flagged vessel carrying Ukrainian corn to China, had struck the western bank of the Canal in one of its narrower stretches earlier on Monday, near the city of Qantara, in the Suez Canal province of Ismailia. The circumstances leading to the incident are still unclear. However, Leth Agencies, a Canal services firm, said three tugs dispatched by the SCA had managed to pull the ship away from the bank, allowing traffic to resume. Leth said that minor delays were still to be expected as a result of the incident. MV Glory’s accident briefly revived fears of 2021, when the massive container ship Ever Given wedged itself between the canal’s two banks, blocking the vital trade artery for six days. Around $9 billion of goods passes through the Canal each day. The Ever Given’s misfortune had added to disruptions caused by the COVID-19 pandemic, snarling global supply chains and contributing to the overheating of freight rates that have been part of the global rise in inflation in the last two years. Last August, a Singaporean-flagged oil tanker had also run aground in a single-lane stretch of the canal, blocking the waterway for five hours before it was freed.  The Canal, originally opened in 1869, has undergone a major widening in the last decade to allow it to accommodate bigger ships.  More

A historic surge in inflation has eroded real incomes over the past two years and firms are finally starting to adjust wages, leading to worries that high inflation could be perpetuated if wage setting is adjusted on a more permanent basis.”Wage growth over the next few quarters is expected to be very strong compared with historical patterns,” the article written by staff economists concluded. “This reflects robust labour markets that so far have not been substantially affected by the slowing of the economy, increases in national minimum wages and some catch-up between wages and high rates of inflation.”But the expected economic slowdown and uncertainty about the outlook are likely to put downward pressure on wage growth beyond the near term, the economists argued.ECB President Christine Lagarde recently argued wages are probably rising at a faster pace than predicted and the ECB must stop this from pushing up longer term inflation expectations.The bulletin article, however, appeared to play down wage concerns, arguing that real incomes will continue to fall as inflation will be higher than the robust increase in nominal wages.”Real consumer wages are now substantially lower than before the pandemic and are likely to fall further in the coming months,” the ECB concluded in the article. “This could lead trade unions to demand higher wage increases in upcoming negotiation rounds, especially in sectors with lower wages.” More

The breakdown was expected to cause only minor delays, with convoys of ships resuming regular transit by 11:00 local time (09:00 GMT), shipping agent Leth said.The M/V Glory, which was sailing to China, suffered a technical fault when it was 38km into its passage southward through the canal, before being towed by four tugs to a repair area, the Suez Canal Authority (SCA) said in a statement.The Suez Canal is one of the world’s busiest waterways and the shortest shipping route between Europe and Asia.In 2021, a huge container ship, the Ever Given, became stuck in high winds across a southern section of the canal, blocking traffic for six days before it could be dislodged.The M/V Glory is a Marshall Islands-flagged bulk carrier, data from trackers VesselFinder and MarineTraffic showed.It departed Ukraine’s Chornomorsk port on Dec. 25 bound for China with 65,970 metric tonnes of corn, according to the Istanbul-based Joint Coordination Centre (JCC) overseeing Ukraine grain exports.The JCC, which includes representatives from the United Nations, Turkey, Ukraine and Russia, said the ship had been cleared to carry on its journey from Istanbul after an inspection on Jan. 3. More

Good morning. Scenes in Brasília over the weekend brought back painful memories of two years ago in Washington. Trump might be receding into the rear-view mirror, but anti-democratic populism is not. Send me some good news, please: [email protected] news on wage growth was not all *that* good, everyone please calm downThe markets saw last Friday morning’s jobs report — and in particular its data on slowing wage growth — as more evidence that inflation will continue to cool rapidly and the Federal Reserve will be able to begin cutting rates before the end of this year. The S&P rose 2.3 per cent on the day and the two-year Treasury yield fell 19 basis points, representing almost an entire rate hike falling out of investor expectations. The futures market now prices a 95 per cent chance that the Fed’s policy rate will be below the central bank’s stated target of 5.1 per cent at the end of 2023. Regular readers will not be surprised that Unhedged does not think the news was quite as good as all that, both because of our congenital ill temper and because we have argued in the past that the final rounds of the inflation fight will be the toughest. The economic data remains equivocal, ambiguous, and confusing. Yes, a decline in wage growth to 4.6 per cent in December, and revision to earlier months’ growth rates, leaves us with a steadily slowing trend in wage growth that reaches back to May — even if the current growth rate is uncomfortably high:New jobs added have fallen every month since August, too. But adding well over 200,000 jobs a month, with ample openings and a high quit rate is not deflationary, even in combination with the surprise weakness in activity surveys reported last weak. Christian Keller at Barclays thinks markets should put away the champagne until the data is easier to read: A combination of rising employment and slowing wage growth would certainly be good macro news, potentially rendering the Fed less hawkish. We warn, however, that [the average hourly earnings data] is notoriously noisy and prone to distortions from ongoing shifts in the composition of payroll employment back to lower-paying service sector jobs, as strong labour demand draws less-skilled workers . . . Next week’s Atlanta Fed wage tracker and later the Q4 Employment Cost Index (January 31) control for compositional effects, which should shed more lightDon Rissmiller of Strategas also emphasised compositional issues:Average pay can be affected by mix shifts: the economy is adding more part-time vs. full-time jobs. But workers appear to be choosing part-time (ie, these are not mainly part-time for economic reasons). There’s still a mismatch in labour supply vs. labour demand. A tight labour situation will continue to threaten future wage pressure . . . Price inflation is peaking, but wage inflation looks sticky. Rissmiller thinks that chances are good that what kills off wage inflation is a recession. Matt Klein, over at The Overshoot, makes another important point: the marked slowdown in wage growth can only be deflationary if it is accompanied by lower churn in the job market. If inflation is under control, demand must be below supply. When someone loses their job, their contribution to demand falls as they tighten their spending, but their contribution to supply falls to zero — they’re unemployed! So the job losses alone are not deflationary. The employed need to be scared into accepting the jobs and wages they are receiving now, and watching their budgets:Forcing people out of work does not, by itself, reduce pressure on prices. Scaring people into spending less relative to the value they generate does. Thus, from the Fed’s perspective, the ideal scenario is that workers lose their leverage to ask for bigger raises without anyone actually getting fired. But that (relatively) benign outcome is only going to happen if job market churn normalises. Unfortunately, the latest data imply that this is still a ways off.The number of job vacancies relative to the number of people actively looking for work is still about double what it was on the eve of the pandemic . . . More importantly, given the tighter relationship to wage growth, is the number of people quitting their job for better prospects elsewhere. While the number is down quite a bit compared to the peak at the end of 2021, there has been no real change since June.Olivier Blanchard is also focused on openings. Back in November, he tweeted that the US would soon be experiencing “false dawn” on inflation as commodity prices have started to fall, but that wage growth remains consistent with inflation persistently above the Fed target. In an email yesterday, Blanchard wrote that despite the latest data, he had not changed his mind. We wrote:The issue is, once energy/food prices have stabilised, can we maintain stable inflation with an unemployment rate of 3.5 per cent? I believe, based in particular on my work with Summers on the Beveridge curve [the relationship between unemployment and job vacancies] that we need a higher unemployment rate, perhaps around 4.5 per cent. The recent wage numbers suggest that maybe I am too pessimistic. I do not think so, but we shall see. If I am right, then the Fed has to slow down the economy, or given the lags, believe that the economy will slow down, before it starts decreasing rates. Everyone, Unhedged included, wants inflation to get to target without having a recession. But that is still not the most likely outcome.Gold & central banksIn a blighted investment landscape, gold has done pretty well over the past 12 months:The strong performance since August is particularly impressive because it has occurred while real interest rates have been solidly positive — in the range of one and a half per cent, as measured by the yield on 10-year inflation-protected Treasuries. Usually gold moves inversely with real rates, which reflect the opportunity cost of owning an expensive, inert metal. One of the key reasons for the rally, as the FT reported at the end of last month, is the increase in demand from central banks: Central banks are scooping up gold at the fastest pace since 1967, with analysts pinning China and Russia as big buyers in an indication that some nations are keen to diversify their reserves away from the dollar . ..In the third quarter [of 2022] alone central banks bought almost 400 tonnes of gold, the largest three-month binge since quarterly records began in 2000.Does the increase in central bank appetites mark a lasting shift in the supply/demand balance? Jon Hartsel, CIO at Donald Smith & Co, thinks so. He notes that demand. . . has been consistently positive around 500 tons per year since the great financial crisis (vs. mine production of ~3,500 recently), but it came in at a record 400 tons in Q3 alone, and its quite possible it could average 750-1,000 tons per year going forward given the geopolitical backdrop where gold’s utility as a neutral (non-USD) reserve asset to Russia, China and Middle Eastern countries became more apparent in 2022. James Steel, precious metals analyst at HSBC, strikes a more cautious tone. He thinks that the recent strength in the gold price has to do with expectations of Fed rate cutting as well. While acknowledging that central bank demand is higher and likely to stay that way, he thinks three points need to be kept in mind:Central banks are not preparing to shun the dollar. The gold purchases are better thought of as marginal diversification, in a form which does not require a commitment to other global currencies, all of which have their own problems. Some 50 or 60 per cent of physician gold production goes into jewellery in developing economies such as China and India, where consumers are very price sensitive. As the gold price rises above $1,800 or so, demand ebbs quickly. Central banks are price sensitive too, and will moderate their gold purchases as prices rise. Unhedged is a bit sceptical about gold as an investment, for the standard reasons (no yield, not productive, overrated inflation hedge) but we’ll be watching more closely now.One good readWait, who? More

Brazil’s new president Luiz Inácio Lula da Silva vowed to root out the “financiers” and “vandals” who stormed the main government complex in Brasília yesterday in scenes reminiscent of the US Capitol riot two years ago by supporters of ex-president Donald Trump.“There is no precedent in the history of our country for what these people did. They have to be punished. And we are going to find out who are the financiers of these vandals,” Lula said, as he returned to the capital after a night of violence.“They will all pay with the force of law for this irresponsible act, this anti-democratic act, this act of vandals and fascists.”Thousands of supporters of Brazil’s former rightwing president Jair Bolsonaro yesterday stormed the Congress, supreme court and presidential palace in Brasília before the police and security services regained control.Clad in the yellow and green of the Brazilian flag, the protesters called for a military coup d’état, demanding that the election victory of Lula be overturned and the leftwing leader imprisoned. Police said 300 people were arrested.Although the government buildings were unoccupied and Congress was not in session, the breaches are likely to raise doubts about the security of Brazil’s political and judicial institutions.The incident also presents tough choices for Lula, who took over the presidency just a week ago promising to unite the nation but who will now be under pressure to crack down on Bolsonaro’s radical supporters.For months Bolsonaro has cast doubt on the integrity of Brazil’s electronic voting system. His political party launched a legal challenge to annul October’s election result, but it was rejected by a court.The former president, who is currently in Florida, yesterday said on Twitter that peaceful demonstrations were part of democracy, but that the actions on Sunday crossed the line.Go deeper: Who are the rioters who stormed Brazil’s government offices?Five more stories in the news1. Exclusive: US military deepens ties with Japan and Philippines to prepare for China threat US and Japanese armed forces are rapidly integrating their command structure and scaling up combined operations to prepare for a possible conflict with China over Taiwan, according to the top Marine Corps general in Japan. The two militaries have “seen exponential increases . . . just over the last year” in their operations on the territory they would have to defend in case of a war, Lieutenant General James Bierman told the Financial Times. Read more on the interview here.2. Goldman Sachs prepares to cut thousands of jobs The Wall Street bank is preparing to cut 3,200 jobs, a person familiar with the matter told the Financial Times. The cuts, which represent about 6.5 per cent of Goldman’s workforce, are to rein in costs as it faces a slowdown in investment banking and a pairing back of its consumer bank.3. New Avatar movie becomes seventh-highest grossing of all time Avatar: The Way of Water has now sold tickets worth more than $1.7bn at the global box office following weekend sales, putting it ahead of Jurassic World in the list of highest grossing movies of all time. James Cameron’s original Avatar, released in 2009 and added to the Disney franchise in 2019, remains the top moneymaker in cinema history with $2.9bn in gross sales. 4. Russia at risk of becoming failed state, say foreign policy experts Nearly half of top foreign policy experts think Russia will become a failed state or break up by 2033, while a large majority expects China to try to take Taiwan by force, according to a new survey by the Atlantic Council that points to a decade of global tumult ahead.5. Thousands cross Hong Kong-China border as Covid restrictions end Tens of thousands of travellers crossed in both directions between the Chinese mainland and Hong Kong yesterday as Covid restrictions were eased for the first time in three years. Meanwhile, many of the world’s leading tourist destinations are preparing to welcome back Chinese tourists as they are allowed to travel again.

People rushed border crossings between Hong Kong and mainland China yesterday after strict Covid restrictions on travel were lifted © Bloomberg

The day ahead US-Mexico: Joe Biden is in Mexico City for bilateral talks with his Mexican counterpart, Andrés Manuel López Obrador, ahead of a trilateral leaders’ summit between the two and Canadian prime minister Justin Trudeau tomorrow. Yesterday the president visited El Paso, Texas to take a first-hand look at the migrant surge on the southern US border.McCarthy takes up the gavel After a historic 15th round of voting in the early hours of Saturday morning Kevin McCarthy was finally nominated to the role of Speaker in the House of Representatives — now the hard work begins. Supreme Court: The US Supreme Court will consider the scope of attorney-client privilege when it hears oral arguments in a case known as In re Grand Jury. Currently, a lawyer cannot be compelled to divulge legal advice given to a client, however they can be ordered to disclose non-legal advice. Today’s case will focus on the area in between: when advice is partially legal and partially not legal. Read more on the case.Company results Jefferies Financial will report its latest quarterly and full-year financial results, with analysts expecting the company to post earnings of 62 cents a share on revenue of $1.25bn in its fourth quarter of 2022, and $3.12 a share on revenue of $5.8bn for the year.Markets outlook Contracts tracking US equity markets rose slightly this morning ahead of the Wall Street open. The gains follow a strong end to the first week of the year on Friday, after government data showed the economy added more jobs than economists had expected in December but slowing wage growth.FT Live will host a number of events alongside the World Economic Forum in Davos next week. View the events and register for free here.What else we’re reading The Murdoch family trust: how the scions could battle for control The dilemmas of succession, shared control and tangled family loyalties that have dogged Rupert Murdoch’s career are now set to fall heavily on the next generation of the media dynasty. With the $27bn plan in motion to reunite Fox and News Corp one question looms: when the time comes, will the rest of the family let Murdoch’s eldest son and chosen heir Lachlan run the show? Global media editor Alex Barker investigates. North Korea’s evolving nuclear threat In spite of tough international sanctions and extreme self-imposed isolation during the coronavirus pandemic, experts warn that North Korea has made such rapid progress with its military goals that existing arrangements for the defence of South Korea, Japan and the US could soon be rendered obsolete.From obscurity to a $240bn valuation in three years The astonishing growth of International Holding Company, a conglomerate based in the United Arab Emirates, has taken even its chief executive by surprise. The former fish farm and real estate business employed 40 people three years ago and now has a headcount of 150,000 and a market value of $240bn.

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Hyper-efficiency is bad business Did you have a happy holiday season? Probably not if you travelled with the budget carrier Southwest Airlines. While severe weather and out-of-date crew scheduling software were cited as reasons for the meltdown, the problem is reflective of a much larger issue for Southwest in particular, the airline industry in general, and even the American business landscape as a whole, argues Rana Foroohar.There are only five reasons to go to Davos Critical communications expert and founding partner at Monkwell Strategy, Rutherford Hall, briefs a client ahead of this year’s World Economic Forum. “The one problem with networking at Davos is everyone wants to network up, not down,” he writes.Take a break from the news Have your chakras aligned in a sound- and light-therapy chamber, close yourself away in a private Longevity Garden or lounge on an infrared bed shaded by banana trees. Four healing hotels for 2023 to help you get your groove back.

The healing village spa at Four Seasons Bali at Jimbaran Bay More

Nearly half of top foreign policy experts think Russia will become a failed state or break up by 2033, while a large majority expects China to try to take Taiwan by force, according to a new survey by the Atlantic Council that points to a decade of global tumult ahead.Forty-six per cent of the 167 experts responding to the think-tank said Russia’s failure or break-up could happen in the next 10 years. In a separate question, 40 per cent pointed to Russia as a country they expected to break up for reasons including “revolution, civil war or political disintegration” over that time.“Ukraine clearly highlights the possibility of internal problems for Russia, and the possibility that the war itself might have boomerang effects for not only its leadership, but for the country as a whole,” said Peter Engelke, the Atlantic Council’s deputy director of foresight who helped to design and interpret the survey. Western officials say Russia has been significantly weakened by its invasion of Ukraine 11 months ago, including by sanctions and export controls. Economists believe Russia’s productive capacity is steadily degrading as a result of the punitive measures, pushing the country back decades. Russian president Vladimir Putin has begun to publicly acknowledge that Moscow is facing setbacks in Ukraine and that the conflict will take a long time. The US and its western allies have pledged to support Ukraine for as long as it takes, with all parties making plans for the war to continue for years.Even as Europe is seeing the biggest land conflict since the second world war, a majority of the experts polled said they did not believe Russia and Nato would directly engage in a military conflict in the next decade.However, backing increasingly dire warnings by US officials that China will launch a military offensive to retake Taiwan, 70 per cent of respondents predicted Beijing would do so in the next 10 years. American military commanders have pointed to 2027, the 100th anniversary of the founding of China’s People’s Liberation Army, as a possible invasion date. However, some officials have intensified their warnings about Beijing’s intentions over the past year and said that an invasion was possible before 2024.US President Joe Biden has repeatedly said Washington will defend Taiwan from a Chinese attack, even as the US has historically tried to avoid spelling out what it would do to deter both sides from acting.Other findings add to a picture of global disarray. Nearly 90 per cent of respondents believe at least one additional country will obtain nuclear weapons by 2033. Sixty-eight per cent of them said Iran would be most likely to obtain a nuclear weapon, coming as prospects for reviving a nuclear deal between six world powers and Iran have become increasingly dim. Injecting some optimism though, 58 per cent of the experts said they believed nuclear weapons would remain unused over the next 10 years.The foreign policy experts also predicted some degree of American decline. While 71 per cent of those polled predicted the US would continue to be the world’s dominant military power by 2033, just 31 per cent believe that the US will be the number one diplomatic power and 33 per cent the pre-eminent economic one. More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyInflation was the dominant economic and financial issue of 2022 for most countries around the world, particularly for those advanced economies that have consequential impact on the global economy and markets.The effects were felt in worsening living standards, higher inequality, increased borrowing costs, stock and bond market losses and the occasional financial accident (fortunately small and contained until now).In this new year, recession, actual and feared, has joined inflation in the driver seat of the global economy and is likely to displace it. It’s an evolution that makes the global economy and investment portfolios subject to a wider range of potential outcomes — something that a growing number of bond investors seem to realise more than many equity counterparts.The IMF is likely to soon revise down its economic growth projections again, expecting that “recession will hit a third of the world this year”. What is particularly notable to me in this deteriorating global outlook is not just that the world’s three main economic areas — China, the EU, and the US — are slowing down together, but also that this is happening for different reasons.In China, the messy exit from a misconceived zero-Covid policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic wellbeing will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more aggressively revamps a growth model that can no longer piggyback on greater globalisation.The EU continues to deal with energy supply disruptions as Russia’s invasion of Ukraine persists. Strengthened inventory management and the reorientation of energy supplies are well advanced in many countries. However, they are not yet sufficient to lift the immediate constraints on growth let alone resolve longstanding structural headwinds.The US has the least problematic outlook. Its growth headwinds are due to the Federal Reserve’s scrambling to contain inflation after having grossly mischaracterised price increases as transitory and then been initially too timid in adjusting monetary policy.The Fed’s shift to an aggressive front-loading of interest rate hikes came too late to prevent the spread of inflation into the service sector and wages. As such, inflation is likely to remain stubborn at around 4 per cent, be less sensitive to interest rate policies and expose the economy to a higher risk of accidents induced by additional policy mistakes undermining growth.The uncertainties facing each of these three economic areas suggest that analysts should be more cautious in assuring us that recessionary pressures will just be “short and shallow”. They should keep an open mind, if only to avoid repeating the mistake of prematurely dismissing inflation as transitory.This is particularly important as these diverse drivers of recession risk make financial fragilities more threatening and policy transitions harder, including Japan’s likely exit from its interest rate control policies. The range of potential outcomes is unusually large.On the one hand, a better policy response, including to improve supply responsiveness and protect the most vulnerable segments of the population, can counter the global economic slowdown and, in the case of the US, avoid a recession.On the other hand, additional policy errors and market dislocations can lead to self-reinforcing vicious cycles with high inflation and rising interest rates, weakening credit and pressured earnings, and market functioning stress.Judging from market pricing, more bond investors are understanding this better, including by refusing to follow Fed’s guidance on interest rates this year. Rather than a sustained path of higher rates for 2023, they believe that recessionary pressures will lead to cuts later this year. If right, government bonds would offer the returns and portfolio risk mitigation potential sorely missed in 2022.Parts of the equity market, however, are still pricing in a soft landing. The reconciliation of these different scenarios is of importance to more than investors. Without better alignment within markets and with policy signals, the favourable economic and financial outcomes we all desire will prove not just less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of lower economic and human resilience.

Video: Fractured markets: the big threats to the financial system More