Aurelia Butler

LONDON (Reuters) – Sharply higher interest rates, red-hot inflation and a prolonged energy crisis are leading to conviction that the world economy is headed inexorably towards recession.It’s a risk U.S. Treasury Secretary Janet Yellen and European Central Bank chief Christine Lagarde have acknowledged even if neither considers it a baseline scenario. Federal Reserve chief Jerome Powell rejects the notion..Paul O’Connor, head of the multi-asset team at Janus Henderson, notes that since 1955 “the U.S. economy has always experienced a recession within two years from every quarter in which inflation was above 4% and unemployment was below 5%, as they are today.”The International Monetary Fund this week warned inflation and war may push the world economy to the brink of recession.Here’s what some key recession risk indicators say:1/ OLD FAVOURITE The U.S. Treasury yield curve has a track record of predicting recessions, especially when two-year yields rise above 10-year maturities. The 2/10s yield curve has inverted before every one of the last 10 U.S. recessions.The yield gap between the two maturities is around -20 bps, and was recently its most inverted since 2000.Central banks are jacking up interest rates. The Fed just delivered a second 75 basis-point increase on Wednesday to tame 9.1% inflation. (Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/byvrjwwmnve/chart.png) 2/ GAS-FLATIONSome investors tie global recession risks to gas supplies from Russia. The IMF says a complete supply cut to Europe by year-end and another 30% drop in Russian oil exports would see European and U.S. growth at virtually zero. Global growth could slow to 2% in 2023, it warns, a level effectively amounting to recession given population growth and poor countries’ need for faster expansion.European gas prices have soared 180% already this year.An “inflationary recession” in Europe this year will ripple outward, asset manager PIMCO said, noting the United States sends a third of its exports to Europe and relies on European Union producers for 25% of its imports.(Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/xmpjoddjgvr/chart.png)3/ PMI SHOCKPurchasing Managers Indexes are reliable predictors of manufacturing, services, inventories, orders, and therefore future growth. So, the unexpected contraction in U.S. and euro zone July PMIs sparked an investor dash for the safety of bonds. For Citi analysts, the July PMIs confirm that Germany is in recession, with the euro area not far behind.Within global PMIs, higher inventories typically signal slower growth, especially if accompanied by a slide in new orders. Goldman Sachs (NYSE:GS) noted this ratio hit its lowest level since May 2020 this month. (Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/zdpxobbanvx/chart.png)4/ COUNTING COMMODITIES Copper, a growth bellwether, is down 22% this year.Dubbed “Dr Copper” because of its record as a boom-bust indicator, the metal has also seen its price ratio to safe-haven gold hit an 18-month low.Standard Chartered said recessionary fears had caused a fall in base metal prices and it had revised down its forecasts.Brent crude prices have also slid for two straight months. (Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/klvykyymwvg/chart.png)5/ WATCH JUNK Corporate sector stress, especially at the lower end of the credit spectrum, is another warning signal.Financing costs for sub-investment grade, or “junk” U.S. companies stand just below 8%, having almost doubled this year, while in euro markets, yields have soared to 6.4% from 2.8% in early-2022.(Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/dwvkrbblxpm/chart.png)6/ NO CONFIDENCE Citi’s Economic Surprise Index, measuring the degree to which data beats or misses forecasts, is down sharply for Europe and the United States.Consumer confidence moves are especially noteworthy; the U.S. Conference Board’s consumer confidence index fell to a nearly 1-1/2 year low in July while German sentiment will hit another record low in August, a survey forecast.”The No. 1 point is consumer confidence, reflecting worsening purchasing power,” Indosuez Wealth Management CIO Vincent Manuel, said.The University of Michigan consumer sentiment index, currently around 50, is approaching “recession levels,” he added. (Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/akpezwwjnvr/chart.png) More

BEIJING (Reuters) – China will try hard to achieve the best possible results for the economy this year, state media said on Thursday after a high-level meeting of the ruling Communist Party, dropping previous calls that it will strive to meet its 2022 growth target.In the second half, China should “stabilise employment and prices, maintain economic operations within a reasonable range, and strive to achieve the best possible results,” Xinhua news agency reported, after the 25-member Politburo chaired by President Xi Jinping met to assess the economy.The world’s second-largest economy narrowly avoided contracting in the second quarter due to widespread COVID-19 lockdowns and analysts said Beijing’s full-year growth target of around 5.5% had been looking increasingly unattainable.Chinese leaders “have signalled that they won’t embark on massive stimulus just to hit the national target,” Capital Economics said, while noting Beijing said it would work to stabilise the distressed property market, which has been dragging heavily on activity for the past year. “We expect official 2022 GDP growth of at most 4% and think that, in reality, the economy may not grow at all this year.”Gross domestic product in the first half grew only 2.5% from a year earlier, pointing to huge pressure in the second half, amid fears of a global recession, uncertainties from the Ukraine war and worries of recurring COVID lockdowns.While much of the rest of the world has been trying to live with the virus, China shown no sign of backing off from its tough zero-COVID policy.After an April Politburo meeting, Xinhua reported China will “work hard to realise the annual economic and social development targets.”On June 22, Xi, at the opening of a BRICS forum, said China would take more measures to achieve its annual economic goals while minimising the impact of its COVID-19 prevention and control measures as much as possible.But during an inspection tour in the central city of Wuhan on June 28, Xi said China will “strive to reach a relatively good level of the economic development this year”.Similarly, last week, Premier Li Keqiang said at the World Economic Forum that China will “strive for relatively good results in economic development for the whole year”. Xinhua said on Thursday that large provinces must take lead in growing China’s economy, and those in a position to achieve their economic goals should do so. “The government did not say what the relationship between the ‘best possible’ results and the around 5.5% GDP target is,” said Qu Qing, head of investment consulting at Huachuang Securities.”Instead, the ‘best possible’ results mean local economies should do their utmost to hit their economic goals.”Qu does not expect massive new policies in the second half of the year, saying the focus will be on the implementation of previous measures. So far, authorities have deepened tax credit rebates, accelerated local government special bond issuances to buoy infrastructure investments, and lowered car purchase taxes. More

BENGALURU/HONG KONG (Reuters) – China will help property developers by issuing 1 trillion yuan ($148.2 billion) in loans for stalled developments, the Financial Times said on Thursday, as Beijing tries to revive the debt-stricken sector and relieve pressure on the economy.Once a key pillar of growth, China’s property sector has been lurching from one crisis to another for the past year. A growing mortgage revolt by homebuyers this month has put more pressure on authorities to act quickly to quell any social unrest. The People’s Bank of China (PBOC) will initially issue about 200 billion yuan of low-interest loans, charging about 1.75% a year, to state commercial banks, the FT said, citing people involved in the discussions.The plan, recently approved by China’s State Council, will permit banks to use the PBOC loans along with their own funds to refinance stalled real estate projects, the report added. Reuters has sought comment from PBOC.In Hong Kong, the Hang Seng Mainland Properties Index reversed morning losses after the report and ended flat.The world’s second-biggest economy, of which the property sector accounts for a quarter, only narrowly missed a contraction in the second quarter and is facing an uneven recovery.CRISIS OF CONFIDENCE A source with direct knowledge of the matter told Reuters the “initial” 200 billion yuan will be the total relending facility from PBOC to state banks, and the banks will leverage the money to get more financing from the market.The official added the funds will not all be used as loans to developers, but also for other methods to help real estate companies.Reuters reported this week, citing a state bank official, that China planned to launch a real estate fund to help the sector, aiming for a warchest of up to 300 billion yuan ($44.5 billion).Part of the fund will be used to bankroll the purchases of unfinished home projects and complete their construction, and then rent them as part of the government’s drive to boost rental housing, the bank official said.The central bank will support an initial 80 billion yuan of the fund, with state-owned China Construction Bank (OTC:CICHF) contributing 50 billion yuan of it with a relending facility from the PBOC, Reuters reported.However, property developers and analysts said even one trillion yuan in new financing will not be sufficient to resolve the sector’s debt mess. China Evergrande Group alone has more than $300 billion in debt and is expected to announce a restructuring plan this week.Beijing is scrambling to reassure homebuyers who are threatening to stop paying mortgages on unfinished projects, which is spurring a shakeout among cash-starved developers who have long relied on pre-sales of apartments.Private developers account for around 70% of the market, and at least half of them have run into liquidity issues, according to analysts. The mortgage boycott has also hit banking stocks, as investors fear lenders could face hefty writedowns. Up to 1.5 trillion yuan ($220 billion) of mortgage loans are linked to unfinished residential projects, ANZ estimated in a report.While new funding schemes led by the government will help to boost market sentiment, analysts said more action will be needed.Markets had hoped for more property support announcements this week after a meeting of the Politburo, a high-level body of the ruling Communist Party. But its statements on the sector released on Thursday by state media were brief, promising to stabilise the market and ensure delivery of homes.Meanwhile, both home buyers and investors are staying away after waves of bad news.China’s property investment fell 5.4% from a year earlier in the first half of the year, while property sales by floor area slumped 22.2% and new construction starts fell 34.4%, official data showed. “We expect stronger, but targeted, policy easing will be rolled out in the second half to support real estate construction and infrastructure spending,” Oxford Economics said in a note this week.”While this will provide a short-term boost to the economy, it is not ideal for China’s longer-term growth as the government and the financial sector are being forced to help sustain an unproductive (and failing) real estate industry.”($1 = 6.7470 Chinese yuan) More

(Reuters) – U.S. seniors tell pollsters that high inflation is one of their top worries – and that makes sense. Aside from Social Security, which is adjusted annually to reflect consumer prices, retiree income is fixed.Policymakers have talked over the years about making the Social Security cost-of-living (COLA) formula more generous, but that would just be a tweak. If we really want to help seniors cope with inflation, we need to tackle the rising cost of healthcare, which historically has increased more quickly than general inflation.In the Medicare program, overall out-of-pocket costs now consume 19% of the average Social Security benefit, up from 15% in 2002, according to the Kaiser Family Foundation (KFF). The increase is split roughly in half between premiums and deductibles, KFF found.Those figures point to the need for structural reforms to Medicare. It is time to examine the dramatic privatization of Medicare that has occurred in recent decades, and ask whether our current marketplace-driven structures make sense. Mounting evidence suggests that we could save billions of dollars for retirees and taxpayers alike by making changes to the current system.“These market mechanisms have had 50 years to prove themselves, but the situation is only getting worse,” said Peter Arno, director of health policy research at the Political Economy Research Institute at the University of Massachusetts-Amherst.Sometime in the next few years, Medicare Advantage – the managed care alternative to traditional Medicare offered by private health insurance companies – will account for half of all Medicare enrollment. Insurance companies own the Part D prescription drug business lock, stock, and barrel – if you want coverage, you will buy it from a private insurer. Advocates of privatization argue that marketplace competition has kept costs down and encouraged innovation. But Medicare spending actually is higher – and growing more quickly per person for beneficiaries in Medicare Advantage than in traditional Medicare. In 2019, the higher spending added $7 billion in costs to the Medicare program that would not have been there if Advantage participants had instead been enrolled in Original Medicare, KFF research shows https:// Earlier this year, a federal investigation found “widespread and persistent problems related to inappropriate denials of services and payment” by Advantage plans. The Office of Inspector General in the U.S. Department of Health and Human Services found evidence https:// that these plans are preventing enrollees from receiving medically necessary care. IMPROVING PRESCRIPTION DRUG PROTECTIONSIn the Part D prescription drug marketplace, drug plan premiums have remained relatively flat in recent years. But focusing on premiums alone misses the bigger picture of total out-of-pocket costs. Part D does not have a cap on the total out-of-pocket costs for prescription drugs, and beneficiaries who take high-cost specialty drugs can face very high costs.The Part D deductible can vary by plan, but in 2022 it cannot exceed $480. That covers you during the “initial benefit period,” up to $4,430 in combined spending by you and your insurer. Beyond that point, you pay a percentage of drug costs that varies as your spending escalates.The marketplace approach to health insurance has also created unnecessary complexity for Medicare enrollees, who face the burden of shopping among dozens of plan offerings in government-sponsored insurance marketplaces. They need to do it annually, as plan offerings or their health needs shift – yet few are willing to take on this chore.KFF has found that https:// more than half of Medicare enrollees do not review or compare their coverage options annually, including 46% who “never” or “rarely” revisited their plans. This means that many Part D enrollees are paying too much or do not have adequate coverage, since drug plans routinely change the “formularies” that determine the terms of coverage from year to year.Reversing Medicare privatization entirely seems unlikely. But we can reform the program so it does a better job of controlling costs borne by retirees.The U.S. Congress is considering an important step in this direction with a proposal aimed at containing prescription drug prices. The proposed legislation would empower Medicare for the first time to negotiate the price of some high-cost drugs with their manufacturers. That approach has been in place for a long time in the Medicaid program, and at the Department of Veterans Affairs, and it has proven effective.Just as important, the bill would place a hard cap of $2,000 on out-of-pocket costs for Part D enrollees. And it would require pharmaceutical makers to pay rebates if drug price increases exceed general inflation.But more steps are needed. Right now, the playing fields of traditional Medicare versus Advantage programs are uneven. Advantage plans come with a built-in cap on out-of-pocket costs – the average ceiling in 2021 was $5,091 for in-network services, according to KFF. But traditional Medicare enrollees enjoy no such ceiling – many buy commercial Medigap coverage, or receive protections through Medicaid or a retiree benefit from a former employer.A uniform out-of-pocket cap would make Medigap unnecessary, and make traditional Medicare work better for enrollees. Couple that with getting a handle on prescription drug costs, and we could make serious progress on reining in the cost of living for retirees.The opinions expressed here are those of the author, a columnist for Reuters. More

One day in 1956, the Irish civil servant TK Whitaker had a jolt when he saw the cover of Dublin Opinion magazine. An illustration showed an empty Ireland, beside the text “Shortly Available: Undeveloped Country, Unrivalled Opportunities, Magnificent Views, Political and Otherwise, Owners Going Abroad”. Ireland’s model of economic and emotional autarky had failed. Nearly half a million Irish people emigrated in the 1950s. By 1960, fewer than 3mn were left in the republic. Besides people, Ireland mostly exported cattle, often on the same boats. So thin were trade flows that individual racehorses, travelling back and forth to Britain for races, could move the numbers. Whitaker, in his spare time, began writing a pamphlet that outlined a new Irish model. He advocated “production for export markets” and said “freer trade in Europe must be faced”. In 1958, his so-called Grey Book became government policy. Ireland had decided to globalise, even if nobody at the time used that word. The plan worked. Today’s rich, open country originated with Whitaker (who died aged 100 in 2017), as Fintan O’Toole explains in We Don’t Know Ourselves: A Personal History of Ireland Since 1958. In the late 1950s, many isolated places were belatedly boarding the ship of globalisation that had resumed its voyage after 1945. Today, a similar drama is playing out, mostly along Russia’s western frontiers: cut-off countries are trying to globalise. The Ukraine war, often described as a battle for democracy, is just as much one for globalisation.

In the late 1950s, globalisation was winning the argument. The new European Economic Community was boosting trade, and in December 1958, 10 western European countries made their currencies convertible. On June 5 1959, Lee Kuan Yew was sworn in as Singapore’s prime minister and set about turning the impoverished new city-state into a global manufacturing exporter. A month later, Spain dumped its Irish-style policy of ruinous autarky and began luring trade, foreign investment and tourists. The City of London, which had become a sleepy place of endless lunches and children playing on bombsites, as Oliver Bullough describes it in Moneyland, also found a way into globalisation: its deposits of unregulated offshore dollars, the so-called Eurodollars, tripled in 1960, as historian Catherine Schenk showed.London, Ireland and Singapore have ended up among the world’s most globalised places. More recently, China and Vietnam have made similar journeys. It’s largely thanks to globalisation that, as Douglas Irwin of Dartmouth College notes, between 1980 and 2019 almost all countries got richer, global inequality fell and extreme poverty plummeted. Trumpian isolationism denies this reality.No wonder today’s isolated countries yearn to globalise. After communism fell, Ukraine watched its globalising neighbour Poland run away from it. In 1990, both countries had about the same income per capita. Polish incomes have since approximately tripled, whereas Ukraine is poorer than 30 years ago. It’s one of several such failures: Tajikistan, Moldova, the Kyrgyz Republic, Georgia, Bosnia and Serbia could take “some 50 or 60 years — longer than they were under Communism! — to get back to the income levels they had at the fall of communism”, wrote economist Branko Milanovic in 2014. Some of these countries are emptying as 1950s Ireland did. Moldova estimated last year that perhaps a third of its citizens lived abroad. If a country doesn’t globalise, its people will, if they can.

For European countries, joining the world tends to start with joining the EU. That’s why Ukraine’s MPs stood and clapped in unison on July 1 when soldiers carried the European flag into the chamber. The EU this summer granted Ukraine and Moldova candidate status and started accession talks with Albania and North Macedonia. But Russia wants its neighbours to follow its retreat from all forms of globalisation except commodity exports. When it first invaded Ukraine in 2014, it hoped to stop the country signing an association agreement with the EU. Belarus, too, is in a battle between a regime that wants to lock it into the Putinsphere and a population that prefers the world. Globalisation is never just about trade. It also involves travel, foreign music, and openness to other ways of life, religion and sex. Some people, especially older ones, fear these novelties but most crave them. Hence the discontent when a country cuts itself off, as the UK is doing, partly accidentally, through Brexit. The anger over traffic jams at Dover expresses the widespread British desire for continued globalisation. As the Irish knew and Ukrainians know, there’s only one thing worse than being globalised, and that’s not being globalised. Follow Simon on Twitter @KuperSimon and email him at [email protected] @FTMag on Twitter to find out about our latest stories first More

Investing.com — The Federal Reserve hiked as expected, but uncertainty exists over its next move when the summer ends. U.S. GDP release could provide some clues, while stocks are expected to hand back some of the previous session’s gains. Meta Platforms disappointed with its quarterly results, in contrast to the record profits from the European oil giants. Here’s what you need to know in financial markets on Thursday, July 28.1. What’s next for the FedThe Federal Reserve delivered its second straight 75 basis point rate increase on Wednesday, as widely expected, but Chairman Jerome Powell also declined to provide guidance on the size of the next rate hike, ensuring a degree of uncertainty over the rest of the summer.Powell did indicate that the central bank could slow the pace of its rate increases if there is evidence that the 225 basis points of tightening so far this year is having an impact on the highest U.S. inflation in four decades.This has provided some hope that the run of unusually large interest rate hikes may be coming to an end, especially given the recent evidence of slowing economic growth.Fed Funds futures priced in a more dovish outlook shortly after the press conference, with the chances the Fed would deliver a 50-basis point hike in September, rather than a third 75 basis point increase, rising to 65%, from just under 51% on Tuesday.However, inflation has proved to be far more tenacious than the Fed originally thought, prompting the rush to tighten monetary policy, and prices could easily remain highly elevated well into the new year.Economic data will be key during the eight weeks until the Fed meets again, with the intervening period including two jobs reports, two inflation reports, and the Fed’s Jackson Hole symposium.2. U.S. 2Q GDP dueWith the Fed seemingly becoming more data dependent, the first release of U.S. economic growth in the second quarter, later Thursday, will be in the spotlight.The preliminary print for second quarter gross domestic product is released at 08:30 AM ET (1230 GMT), and is expected to rise 0.5% in the three months from April through June.However, there must be downside risk to this estimate, with the latest estimate from the Atlanta Fed’s GDPNow tracker standing at -1.2% on the quarter annualized, as of Wednesday.Two consecutive quarters of negative GDP growth is widely seen as an indication the economy is in recession, although in the U.S. the official call is made by a panel of economists convened by the National Bureau of Economic Research, and often long after the fact.“The NBER judges recessions based on a much broader set of data, including the labor market and underlying demand (consumption and investment),” said analysts at ABN Amro, in a note. “Taking this broader definition – and given the strength in the labor market and in consumption growth – it would be hard to conclude that the U.S. has been in a recession.” 3. Stocks set to open lower; Meta Platforms disappointsU.S. stock markets are set to open lower Thursday, handing back some of the previous session’s strong gains on the back of relief that the Federal Reserve kept its interest rate increase to 75 basis points [see above].By 06:00 AM ET (1000 GMT), Dow Jones futures were down 45 points, or 0.1%, S&P 500 futures were down 0.4%, and Nasdaq 100 futures were down 0.8%. Stocks rallied strongly on Wednesday, with the blue-chip Dow Jones Industrial Average rising over 400 points, or 1.4%, while the broad-based S&P 500 gained 2.6%. The star of the show, though, was the Nasdaq Composite, which gained over 4%, with big tech stocks rebounding after their recent hammering by concerns of Fed rate hikes and inflation. That said, it wasn’t all good news in the tech sector as Meta Platforms (NASDAQ:META), the owner of the social network Facebook, issued a gloomy forecast after the close Wednesday, recording its first-ever quarterly drop in revenue.Results from the likes of Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Intel (NASDAQ:INTC) later Thursday will keep the sector in the spotlight.Ford (NYSE:F) is also likely to be in focus as the auto giant reported better-than-expected second-quarter net income, reaffirmed its profit outlook for the year and said it would restore its dividend to the pre-pandemic level.4. Oil majors reap the rewardsSoaring energy prices have created numerous problems for central banks and governments around the world, but the energy giants are now reaping the rewards.Shell PLC (LON:SHEL) reported earlier Thursday a second-quarter profit of $11.5 billion, smashing its previous record just three months earlier, while also announcing a share buyback program of $6 billion for the current quarter.French rival TotalEnergies (EPA:TTEF) also registered a record profit of $9.8 billion in the quarter and accelerated its buyback program, while Norway’s Equinor (OL:EQNR) raised its special dividend and boosted share buybacks after a hefty second-quarter profit of $17.6 billion.U.S. rivals Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) report on Friday, and are likely to also announce positive results.The U.K. imposed a windfall tax on its oil majors in May, and this could become a template for more governments as they struggle to alleviate the global cost-of-living crisis.5. Oil gains; EIA inventories drop sharplyCrude oil prices extended gains Thursday despite the hefty Fed hike as official data confirmed a substantial fall in U.S. crude inventories, easing concerns about falling demand at the largest consumer in the world.U.S. crude oil stockpiles fell by 4.5 million barrels last week, according to Wednesday’s data from the Energy Information Administration, against expectations of a 1 million-barrel drop.This largely matched the results from American Petroleum Institute, released Tuesday, suggesting that U.S. demand is holding up despite the high prices.Further gains look likely, according to the head of Shell, as the tightness in supply outweighs any risks to demand. “Where we are today, there is more upside than downside when it comes to the oil price,” Shell Chief Executive Officer Ben van Beurden said in an interview with Bloomberg TV. “Demand hasn’t fully recovered yet and supply is definitely tight.”By 06:00 AM ET, U.S. crude futures were up 1.9% at $99.13 a barrel, while Brent crude was up 1.9% at $103.55 a barrel. Both contracts gained over $2 a barrel the previous session. More

Back in January, we warned against thinking the Federal Reserve was so scared of stock market crashes that it would refuse to raise rates aggressively — even if it appeared inflation would linger at multi-decade highs (which, full disclosure, we thought it would not). It is easy to see why many people thought that was nonsense. Since Black Monday back in 1987, the Fed has deployed a famed “put”, repeatedly jumping in to counter turmoil with monetary support. But that put relied on the lack of any real inflationary headwinds, which meant the US central bank could provide cheap and plentiful supplies of credit to support asset prices without enabling a cost of living crisis. Inflation is back, and the Fed’s interests and those of the market are no longer so conveniently aligned. Rates have risen faster and higher than almost anyone was positioned for, and the put argument has proved as misguided as bets that bitcoin would prove a decent inflation hedge. The target range has risen from between zero and 0.25 per cent at the start of the year to between 2.25 and 2.5 per cent as of yesterday and is set to climb higher in the coming months, despite signs that the US economy is weakening. The S&P 500, meanwhile, is down 15.6 per cent since New Year’s Day. It is not just investors hooked on cheap credit who have been caught out. The Fed’s monster increases are leading other central banks to go big to keep up. Readers may have seen the excellent piece by Valentina Romei and Tommy Stubbington, published earlier this month, on how monetary policymakers the world over are supersizing their rate rises in record numbers. The standard 25 basis point shift is as dead as the Fed put; and even 50 seems meagre when chair Jay Powell is plumping for 75 at a time. The dollar’s status as the world’s most important currency and its strength — it is up 10 per cent against major currencies this year, in part because of the Fed’s aggression — mean what your money’s worth against the greenback matters for your inflation numbers. About 50 per cent of all goods are priced in it, and it dominates settlement in global energy and food commodity markets, where price pressures have been most acute.Despite the scale of the moves in currency markets, official foreign exchange market intervention, signed off by heads of state, has not happened. The strong dollar has, however, triggered what analysts have called “a reverse currency war”, where no one wants to add to their inflationary woes by looking weak and paying over the odds for imports — and are prepared to raise rates aggressively as a result. This undermines another prediction we made, this one at the beginning of June, when we claimed that central banks in the US, Europe and Asia were on diverging paths. Differences remain. Economists are betting that the European Central Bank, which deployed its own surprise supersize rise of 50bp earlier this month, will end up leaving eurozone rates at much lower levels than its US counterpart as recession in the currency bloc bites. (Though, again, we think markets might be underestimating just how focused central bankers are on fighting inflation.) But, increasingly, the paths are the same. Even the Swiss National Bank is targeting a higher franc, after spending the past 15 years trying to weaken its notoriously sturdy currency. Foreign central banks might, by and large, make decisions independent of domestic political pressure. But their actions suggest the dollar’s hegemony means they have far less sovereignty than we thought — and they would freely admit.This argument that the Fed unduly influences the price of money the world over is, of course, not new. Raghuram Rajan, former governor of the Reserve Bank of India and now a professor at the University of Chicago, has repeatedly called for the US central bank to do more to take into account the global repercussions of its actions. The biggest impact is often felt by poorer countries, where higher US rates usually translate into higher local borrowing costs and capital outflows. We are surprised such calls have not come back in fashion, with the IMF and the World Bank increasingly concerned that dozens of the world’s poorest countries are teetering on the brink of default. “If you’re an economy in the southern hemisphere with a lot of foreign currency debt, the Fed’s tightening really spells trouble,” said Adam Posen, president of the Peterson Institute for International Economics, though earlier restraint by policymakers in countries such as Brazil and Mexico may mean they are less exposed to attacks on their currencies.The strong dollar is far from the only thing that matters for monetary policymakers right now. It is Russia’s invasion of Ukraine that has really driven up energy and food prices this year. The actions of President Vladimir Putin are far more important than those of Powell’s, and — say what you like about the flaws in the Fed’s forward guidance — are far harder to predict. If the war in Ukraine drags on and Russia weaponises energy exports over the European winter, this supply-side-driven inflation will continue to surge. There is not much monetary policymakers can do to change that. Unless they take up Credit Suisse’s maverick monetary maestro Zoltan Pozsar’s suggestion to trade commodities, reverse currency wars may continue to seem like the best option to manage the impact of a real one. The Fed’s interests and those of monetary policymakers elsewhere look better aligned than those of the US central bank and financial markets. Inflation is high almost everywhere. And at some point, maybe even in September, the scale and speed of Powell’s tightening will become less aggressive. If we are lucky, higher global borrowing costs will limit inflation without causing too big a collapse in output and rise in unemployment. However, such a soft landing appears increasingly unlikely. What’s more, if other central banks in weaker economies overdo rate rises in an attempt to keep up with their US counterpart, the damage could be severe. That, we believe, is a real risk. US inflation is 9.1 per cent; cheap money could not last. Nor can international monetary conventions shift overnight, regardless of the risks they create. Until price pressures show signs of drifting back to 2 per cent or — at a push — 3 per cent, the Fed will not stop. But we suspect the pain from Powell’s aggression may not be confined to investors that placed their bets on a put that is no longer in play. Other readablesThis week marked the 10th anniversary of former European Central Bank president and soon-to-be former Italian prime minister Mario Draghi’s commitment to do “whatever it takes” to stave off a collapse in the euro. There have been various commentaries marking the occasion, but we would recommend this one in particular. We liked Martin Wolf’s analysis of two books promoting opposing schools of monetary thought so much that we stole part of its headline for our own. Here is the full review.For anyone seeking a fuller understanding of the European gas market, it is worth taking a look at this presentation from Christian Zinglersen, director of ACER, the EU agency for the co-operation of energy regulators, and this report from Fitch Ratings. Numbers newsEuropean gas prices have soared after Gazprom said it would cut gas flows through the Nord Stream 1 pipeline to just 20 per cent of capacity. Here, in pictorial form, is a sense of how dramatic the rise has been over the past few days. More