Aurelia Butler

Investing.com — The Federal Reserve starts a two-day meeting with markets in disarray, scrambling to price in a 75-basis point hike in key interest rates. The dollar’s advance against the yen and euro stops after a rare admission of concern from Japan’s finance minister and more jawboning from an ECB hawk. U.S. PPI data for May could change that in the near term. Crypto remains under pressure in the wake of the Celsius Network collapse. OPEC releases its monthly oil market report. Oracle surprises to the upside with its quarterly earnings. Here’s what you need to know in financial markets on Tuesday, June 14.1. Markets in disarray as Fed meeting startsThe Federal Reserve kicks off a two-day policy meeting against an increasingly disorderly market backdrop.Market consensus has rapidly switched to expect a 75 basis point increase in the Fed Funds target rate on Wednesday in the wake of another painful overshoot in consumer inflation in May. Producer price inflation data for the month are due at 8:30 AM ET (1230) and look likely to cement such expectations, with a consensus forecast for another hefty 0.8% increase in prices from April.The benchmark 10-year Treasury yield rose by the most this year on Monday as investors scrambled to re-price rising interest rate risks. At 3.32%, it now trades roughly level with the 2-Year note, having briefly traded through that level on Monday. A sustained period of short-term rates trading above long-term ones has historically been a reasonably reliable predictor of recessions.2. Crypto still under pressure after Celsius collapseThe cryptocurrency space remains under pressure after one of the biggest multi-function players in the space, Celsius Network, suspended withdrawals amid a liquidity crisis on Monday.Bitcoin prices touched a new 18-month low of $20,859 in early trading in Europe, before recovering a little to trade at $22,307 by 6:05 AM ET. That’s still down 7.5% from late Monday in New York. Caution is still the order of the day, with market participants aware that MicroStrategy (NASDAQ:MSTR), a de facto leveraged Bitcoin fund, faces a margin call on a $205 million loan if the price falls below $21,000.On the brighter side, the world’s largest crypto exchange by volume, Binance, was able to resume withdrawals after temporarily suspending them on Monday. 3. Stocks set to open with dead-cat bounceU.S. stock markets are set to open with a dead-cat bounce later, after a start to the week that reeked of capitulation.By 6:10 AM ET, Dow futures were up 55 points, or 0.2%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.6%. The benchmark cash indices had lost between 2.8% and 4.7% on Monday.The small-business optimism index compiled by the NFIB earlier edged down to 93.1 from 93.2, an 18-month low but a smaller drop than seen in most recent months.Stocks likely to be in focus later include Oracle (NYSE:ORCL), whose quarterly update beat expectations late on Monday, and Apple (NASDAQ:AAPL), which is under fire from EU antitrust regulators again. Crypto proxies remain under the cosh, meanwhile: MicroStrategy was down 5.4% in premarket, Coinbase (NASDAQ:COIN) down 1.5%.4. Dollar advance pauses after Japanese, ECB commentsThe dollar paused its upward march against both the euro and the yen, after Japan’s Finance Minister gave a rare admission of concern about its weakness and the hawks at the European Central Bank revived the fight for a half-point rise in interest rates in July.Dutch central bank Governor Klaas Knot told the French daily Le Monde in an interview that the ECB should raise by more than the 25bp hike outlined in its guidance last week.At the time, the ECB had left the door open to more drastic action in September but committed to a “gradual” and “data-dependent” approach through the summer.5. Oil edges higher; OPEC monthly report, API dueCrude prices moved higher ahead of the Organization of Petroleum Exporting Countries’ monthly report on the oil market at 7:45 AM ET. Its forecast for demand out of China will be of particular note, given the renewed flare-ups of COVID-19 in Beijing and Shanghai that threaten to trigger a new wave of mobility restrictions.A Beijing government spokesman said earlier that the city needed to go “all out” to bring an outbreak tied to one particular bar under control.By 6:25 AM ET, U.S. crude futures were up 0.6% at $121.62 a barrel, while Brent crude was up 0.7% at $123.06 a barrel. More

LONDON (Reuters) – European Union financial services chief Mairead McGuinness on Tuesday urged the bloc’s lawmakers to agree on bank capital rules to keep the sector resilient as it emerges from the pandemic and markets fragment due to war in Ukraine.The EU is approving a law to implement capital requirements agreed at the global Basel Committee of banking regulators, but intends to deviate from some of the Basel norms for exposures to residential real estate and unrated companies.The European Central Bank, which regulates top euro zone lenders, has opposed the deviations, but McGuinness said they would be temporary to give banks time to increase capital levels, if need be, before they comply in full.”Some say the temporary deviations should not be in or be permanent, and whether we can find a compromise I am not so sure,” she told the European Parliament, which has joint say with EU states on the draft law.”We need to find a compromise to show the European banking system is strong and fit for the future. We are not shying away from implementation, but are giving our banks time to adjust and I think that is quite legitimate,” McGuinness said.She also urged parliament’s economic affairs committee to reach a deal with EU states before the end of June on her draft law to regulate crypto markets.The fall in crypto prices and problems at crypto companies like Celsius Network show the need for rules to protect consumers and keep markets stable, McGuinness said.The EU is also split over her proposal to ban payment for order flow, or wholesale market makers paying brokers for stock orders, a step the United States is also considering.A committee member urged McGuinness to go further and ban inducements across financial markets generally. “When I listen to stakeholders, many of them would say do not ban inducements and perhaps the issue is around visibility and transparency. I am certain the status quo is not the way we should proceed,” McGuinness said. More

Since 2018 and the end of its financial assistance programme, Greek economic developments and policy have been monitored under the euro zone’s so-called enhanced surveillance framework.”A difficult chapter for the country that began in 2010 will close and Greece will return to European normality,” Staikouras said after a meeting with German Finance Minister Christian Lindner in Athens.”It will stop being an exception in the euro zone,” he said. More

Americans are feeling the pain of petrol inflation every time they pull up to the pump. But a supersized surge in the cost of diesel is adding to economically damaging price rises just about everywhere else. The national average price of diesel hit a fresh peak of $5.72 a gallon this week, up 75 per cent over the past year, according to data released on Monday by the US Energy Information Administration. It is one of the sharpest fuel cost increases on record. The national average price of petrol, which cracked $5 a gallon on Saturday, has risen about 60 per cent over the same time.The surge in the price of diesel, a workhorse fuel, is coursing through the US economy, helping to push price increases in the world’s largest economy to 40-year highs. US government data on Friday showed the inflation rate in May accelerated to 8.6 per cent compared with the previous year, the highest level since 1981.“Big parts of the economy run on diesel, from agriculture to manufacturing, and thus the surge in diesel prices is driving up prices broadly,” said Mark Zandi, chief economist at Moody’s, who says diesel prices account for about a fifth of the rise in consumer inflation.The nation’s fleet of truck drivers is at the frontline, with small and big trucking companies saying they are passing hefty fuel surcharges on to their customers to try to offset the sudden rise in costs.“It’s devastating really to everybody . . . because it’s so inflationary,” David Owen, president of the National Association of Small Trucking Companies, said of the sharp rise in diesel prices.“Fuel surcharges are being implemented across the board.”Bart Plaskoff, president of Summit Trucking in Dallas, Texas, said he was paying $70,000 more a week on fuel than he was at the beginning of the year and was telling his truckers to limit idling time and to try to fill up in states with lower taxes to save money.Even accounting for fuel surcharges, he warned that some truckers could struggle to survive the high costs, which could pull trucks off the road and further drive up transportation costs. High fuel prices “could impact the industry as a whole long after fuel prices stabilise. Truckers are the backbone of the American economy. Without them you have no groceries, gas, baby formula, prescriptions, furniture, or even your Amazon package,” said Plaskoff.Because they are less likely to be able to negotiate rates or receive fuel discounts, small trucking companies are those hit hardest by high diesel prices. According to the American Trucking Associations, 97 per cent of trucking companies run 20 trucks or fewer.Retailers, in turn, say they are passing higher costs from trucking and other transport on to their customers to preserve profit margins.“There’s higher transportation costs across the whole supply chain whether it’s ocean freight or trucking or the price of fuel,” Bob Nelson, a senior vice-president at Costco, one of America’s largest retailers, told Wall Street analysts last month. “Eventually, those costs make their way into your sale price.”Target said it would have to pay an extra $1bn on freight and transportation costs this year than it had expected at the start of the year, citing it as one of the main drivers of slumping profitability.High diesel costs are also being felt on farms across the country, pushing up the price of food at supermarkets and restaurants.“All of our equipment runs on diesel . . . Fuel costs are just killing us,” said Don Cameron, general manager at Terranova Ranch, a farming operation in California, where diesel prices are nearing $7 a gallon, far higher than the national average. Cameron also serves as president of the state’s Board of Food and Agriculture.

High diesel costs are being felt on farms across the country, pushing up the price of food © David Ryder/Bloomberg

Cameron’s farm, which employs 65 people full-time and far more during harvest season, grows crops such as fresh produce and almonds that go to large restaurant chains and food processors. He said he had to negotiate price increases of 25 per cent for some of his crops this year, and another 25 per cent increase next year was not “out of the question”. There is little sign of relief in the coming months with diesel prices continuing to surge, complicating the Federal Reserve’s efforts to tamp down inflation and posing political problems for President Joe Biden, who has seen his approval rating dragged down by persistently high inflation. Crude oil prices, the main driver of the cost of diesel, continue to rise because of tight supplies. The world’s oil refiners, after a wave of shutdowns as the pandemic inflicted heavy financial losses on the sector, are struggling to keep up with stronger than expected post-pandemic fuel demand.

US oil producers themselves rely on diesel to fuel trucks that ferry workers, equipment and materials such as water and fracking sand to remote oilfields, and to operate powerful drilling and fracking machinery. A single well can require tens of thousands of gallons of diesel before it starts producing oil. The cost for producers, however, is at least partly offset by higher prices for crude. Goldman Sachs says that it expects Brent crude prices to average $135 a barrel through the rest of the year, higher than the current price of about $122 a barrel.Rob Sladek, owner of JCS Family Farms in Iowa, said his added fuel expense was piling economic pain on top of the already rocketing costs of fertiliser and other agricultural inputs.“It’s like asking, ‘Which tooth on the chainsaw killed you?’ It’s just one of the many,” he said. More

Stalling economic growth has not yet taken the heat out of the UK labour market, according to official data on Tuesday that showed the number of full-time employees at an all-time high, while the number of vacancies rose to a record 1.3mn.However, the data contained some early signs that the jobs market could be on the turn, with hiring slowing and unemployment edging up.Economists said that while the figures supported the case for the Bank of England to raise interest rates again at its meeting on Thursday, they could lessen the argument for a big increase or for continued aggressive policy tightening. The figures, released by the Office for National Statistics, showed the employment rate rose to 75.6 per cent in the three months to April, up 0.2 percentage points on the quarter and a bigger rise than economists had anticipated. This was driven by full-time employment, with part-time work and self-employment still below pre-pandemic levels. Sandra Horsfield, economist at Investec, said “solid labour demand . . . in the context of red-hot consumer price inflation” would confirm the case for further monetary policy tightening, while Hugh Gimber, strategist at JPMorgan Asset Management, said the data showed the “conundrum” facing the BoE, as “central banks are being forced to tighten at a time when there are already clear signs that growth is slowing”.However, the data showed that the breakneck pace of hiring in recent months has slowed. Vacancies, although at a record, were only slightly higher than the previous month. Unemployment rose in April, taking the jobless rate over the three months to 3.8 per cent — slightly above the 50-year low recorded a month earlier. “The labour market could now be at a turning point,” said Greg Thwaites, research director at the Resolution Foundation think-tank, while James Smith, economist at investment bank ING, said: “We can tentatively say that worker shortages are no longer actively getting worse.” This is partly because at least some of the people who have left the workforce since the start of the pandemic are now beginning to return. The ONS said economic inactivity fell by 0.1 percentage points in the three months to April, as young people who had stayed in full-time education rather than start their careers mid-pandemic came back. Kitty Ussher, chief economist at the Institute of Directors, said this was “encouraging for businesses that were struggling to fill vacancies”, as it should make future job openings easier to fill and reduce inflationary pressure. She added that there were also “early signs that the labour market is beginning to settle”, with the rate of hiring slowing and a small rise in short-term unemployment.Chancellor Rishi Sunak said the figures showed the jobs market remained robust, adding that helping people into better jobs was the best way to support them in the long term, although the government was also providing “immediate help with rising prices”.However, inflation is now starting to hit pay packets hard. Although pay growth is still strong by historical standards, average weekly earnings were 3.4 per cent lower in real terms than a year earlier in April, the month when the cap on household energy bills changed. Even after including bonuses, the single month data for April showed total pay had fallen sharply in real terms, though it had broadly kept pace with inflation over the three-month period.

The data will reinforce the case for the Monetary Policy Committee to raise interest rates again when it meets this week. The BoE made it clear in its May forecasts it believed nominal wage growth was running at an unsustainable pace and unemployment would need to rise if inflation was to return to its 2 per cent target in the medium term.Paul Dales, at the consultancy Capital Economics, said nominal wage growth remained unusually strong, but evidence of a “slightly looser labour market” might tilt the MPC towards raising interest rates by 25 basis points rather than 50 basis points. However, Samuel Tombs, at the consultancy Pantheon Macroeconomics, said it was encouraging that wage growth had steadied and workforce numbers had begun to recover. “The labour market remains very tight, but it is not supporting domestically-generated inflation enough to provoke the MPC into a series of rapid rate hikes that would push the economy into a recession,” he said. More

The US Department of Defense has signed a $120mn deal with Australia’s Lynas Rare Earths to build one of the first US domestic heavy rare earths separation facilities, part of Washington’s push to counter China’s dominance of critical mineral supply chains.Rare earth elements are vital to making magnets used in military equipment such as lasers and guidance systems, as well as components in electric vehicles, wind turbines, fibre optic cables and consumer electronics. China is responsible for almost 90 per cent of global refining of rare earths and more than 50 per cent of rare earths mining, according to the International Energy Agency. The US has no operating commercial-scale processing facilities, raising concerns in Washington that the country could be cut off from these critical minerals in the future if relations with China deteriorate further. Under the deal with Lynas, China would be bypassed entirely from the production cycle. The US defence department is also separately funding a heavy rare earth processing project at a mine in California.The Australian Securities Exchange-listed company will export heavy rare earth carbonate mined and refined in Australia to the US, where the individual elements will be separated for commercial use. Lynas, based in Perth, is the world’s largest rare earths producer outside China, according to Barrenjoey, an investment bank.The deal, which expands a pilot scheme first announced in 2020, is part of Washington’s drive to build supply chains and local manufacturing industries in semiconductors, batteries, critical minerals and pharmaceuticals.Lynas said the $120mn investment would cover the full cost of plant construction, meaning the company would not have to put up any capital itself. The plant is likely to be built in Texas and be operational by 2025. The company also announced plans to build a light rare earths processing facility in the same location last year.“The really important thing here is there is no heavy rare earths separation outside China at present,” Lynas managing director Amanda Lacaze told the Financial Times.“Putting aside any geopolitical issues, what we’ve seen from the pandemic is that any singular supply chain has risk associated with it. So this is a terrific opportunity to address that risk,” she said. Lacaze said she hoped the US government would also work to develop an onshore magnet manufacturing industry. “We like to have our facilities close to our customers and our customers close to our facilities,” she said.Lynas processes most of its rare earths at a large plant in Kuantan, Malaysia, and is building another plant in Western Australia. However, the Malaysian plant only separates light rare earths, sending the less common heavy rare earths elements to China for processing. Daniel Morgan, a mining analyst with Barrenjoey, said China’s dominance of this sector was a “strategic vulnerability” for the US.

“As of right now, there are not a lot of options for the US military to get heavy rare earths needed in lasers and guidance systems. Without these heavy rare earths, the US military can’t have these things. It’s a strategic vulnerability,” he said. Australia has some of the largest deposits in the world of critical minerals needed in electronic devices and the energy transition, including nickel, lithium, cobalt and rare earths.The Australian government under previous prime minister Scott Morrison developed a critical minerals strategy that attempted to reach deals with non-Chinese trading partners including the US, UK, EU, Japan, India and South Korea while also giving government funding to local mines and processing plants.In March, representatives from Lynas and a number of other rare earths and cobalt miners travelled to Washington, DC, as part of a delegation with Australia’s trade minister to discuss building stronger trading relationships in these critical minerals.

Video: Why China’s control of rare earths matters More

German brewers have long been wary of increasing prices. When King Ludwig 1 raised the ale tax by 8 per cent in 1844, riots broke out between labourers and the army in Munich that lasted for three days. But Johannes Faust and his 1,500 counterparts scattered across the country may soon have little choice. Faust has brewed beer on the banks of the Main river in northern Bavaria, nestled between the half-timbered houses in the historic centre of the small town of Miltenberg, for 30 years. The chief executive has never seen his costs surge on the scale they are today. The malt Faust’s family-owned brewery has bought from local German producers since it started making beer in 1654 will soon double in price. Russia’s invasion of Ukraine has hit supplies of the grain from the two countries, which together produce more than a third of the global barley market. The brewery is also having to pay at least a third more for its glass bottles, along with over 50 per cent higher prices for plastic cases, and three-quarters more for its metal bottle caps. Energy, transport and staff costs are also going up. “I’ve never seen inflation like this,” said Faust. This brewery, like many in the country, had been able to shield customers from higher costs owing to long-term supply contracts. The doubling of the malt price that he recently agreed is for next year’s supply, while its two-year energy contract means its electricity prices will not go up until 2024. But, unless costs tumble fast in the coming months, higher prices for the country’s beer drinkers look set to follow. Holger Eichele, head of the German brewers’ association, said: “For many companies this is becoming an existential threat.” Across the eurozone, manufacturers are under pressure from rising costs — producer prices rose at an all-time high of 37.2 per cent in the year to April. But the sudden surge in costs is just the latest shock to hit Germany’s breweries. Only a few countries drank more ale than the 83.8 litres each German consumed on average last year. Yet, as more health-conscious consumers choose other drinks, the figure has fallen steadily since the 1970s, when they drank 150 litres per person. If inflation means Germans have to pay much more for their steins of beer, it could squeeze demand for the national tipple even more. Surging costs have been the last straw for some, such as the 558-year-old Frankenwälder brewery in north-east Bavaria, which filed for insolvency this year after many local beer festivals shut for two years during the pandemic. “I fear some breweries in our size range will have problems with higher costs because they don’t have market power,” said Faust.For now, the average German beer drinker will have barely noticed the increase in prices, which rose 3.5 per cent in the year to May, according to Germany’s statistical agency. That is well below broader consumer price inflation of 8.7 per cent in the year to May. This moderation, like a pledge of sobriety at Munich’s Oktoberfest, looks set to be overtaken by circumstance. This month, Faust raised its price by 10 cents per litre of beer, equal to a higher than usual 6.5 per cent increase, taking the price for a 20-bottle crate of its best-selling Pils to €16.49. “But that was decided last October, long before Ukraine, and it does not even come close to offsetting our higher costs,” said Faust.Johannes Faust, chief executive of Faust breweries: ‘I’ve never seen inflation like this’ © Ben Kilb/FTRhineland-Palatinate’s Bitburger said its own “moderate” price increase, decided last year, would also do little to cover its “exploding energy and raw material prices”.The Berlin Brandenburg brewery association, a regional trade group, said prices for beer drinkers could rise up to 30 per cent this year. Radeberger, the biggest German brewer based in Frankfurt, said it also worried about “the increasing scarcity of raw materials and the resulting further price increases”.Economists agree that the capacity for factories to handle high input costs without raising prices for consumers would not last. “Just the delays built in to pricing policy mean there is still a lot of inflationary pressure in the pipeline for the next few months,” said Carsten Brzeski, the Frankfurt-based head of macro research at ING. Oliver Rakau, chief German economist at Oxford Economics, said what started as mostly an oil and gas price shock was broadening to drive inflation in many other products and services. “There’s no denying that higher energy and commodity prices will feed through into other products, like food and drink prices, and that could lead to higher restaurant prices, which pushes up services inflation,” he said.Improving market conditions may also help German brewers to pass on more of their high costs to consumers, who at the moment pay much lower prices than their counterparts in places like the UK.

The Faust brewery is having to pay more for glass bottles, plastic cases and metal bottle caps. Energy, transport and staff costs are also going up © Ben Kilb/FT

Beer sales have rebounded in Germany recently — rising 5.1 per cent in the first four months of this year compared with a year ago, according to Germany’s statistical agency — and the reopening of many beer festivals including Oktoberfest after two years of Covid closures, is likely to boost demand. Beer prices at this year’s Oktoberfest will be on average 15 per cent higher than the last one three years ago, at €13.37 per foaming litre.Still, those who know their history are keen to avoid alienating the country’s drinkers. Asked whether he will raise prices even higher for his customers next year, Faust gave an anguished look. “We have to be very careful,” he said. “We have to think about it, but maybe we can avoid it if things change in Ukraine.” More