Aurelia Butler

“If inflation is permanently at four percent, rents will also have to rise accordingly each year in the future,” Rolf Buch, overseeing a portfolio of some 565,000 apartments, told business daily Handelsblatt in an interview published on Wednesday. “We cannot pretend that inflation will not affect rents.” Vonovia rival LEG, owner of about 166,000 flats, also said inflation would be reflected in rental fees if it persists. “The rental market will not decouple itself from the general price development,” an LEG spokesperson told Reuters. As in other European countries, prices in Germany have risen sharply in recent months, pushed higher first by supply chain problems after the pandemic and then by the war in Ukraine. Consumer prices increased to 8.7% in May, a level not seen since the winter of 1973/1974 during the first oil crisis. Average rental prices at Vonovia increased 3.1% in the first quarter, Buch said. He expects rising energy prices to cost tenants up to two months’ rental fees per year. LEG increased rents by an average of 2.7% in the first quarter, according to the spokesperson.It is a particularly sensitive issue in Germany, where rents have traditionally been relatively stable over many decades, leading to a culture where middle-class families live in rented homes throughout their lives.Inflation has become a concern for large parts of the population with 94% of Germans not expecting prices to fall any time soon and 56% expecting prices to continue to rise, a Forsa poll showed on Wednesday. German Chancellor Olaf Scholz on Wednesday called on the government, trade unions and employers to discuss joint measures against high inflation. “We need a targeted effort in a very unusual situation,” Scholz said. Credit-financed subsidies were not a solution, he said, in particular as Germany plans to return to a constitutionally enshrined debt brake next year. More

Apple is moving some iPad production out of China to Vietnam. The shift will protect the device maker against political interference and supply chain disruption. Both risks are currently elevated in China. Vietnamese companies will not benefit greatly, however. Apple products, from iPhones to MacBooks, are mostly assembled in China. The tech giant has stuck to this despite years of tensions between the US and China as well as threats of blacklists and punitive tariffs. AirPods have been the exception to the rule. Apple moved mass production of these earbuds to Vietnam in 2020. Shifting the production of pricier iPads, which account for a third of the global tablet market, would be a much more decisive change. Most parts suppliers are currently in China, close to assembly plants. Politically the timing is right to diversify. US commerce secretary Gina Raimondo has warned that the Biden administration is actively considering adding new Chinese companies to economic blacklists. The US is investigating alleged sanctions evasion by China.Shanghai is moving towards ending the strict two-month lockdown that has badly disrupted global manufacturing. The effects of factory closures are expected to be long-lasting because of a backlog of orders.Chips remain in short supply. The Shanghai lockdowns mean supplies are equally stretched for low-tech parts, such as printed circuit boards. These are used in all forms of electronics. Local supplies of copper foil — a key material — have been severely disrupted too.Hopes of a windfall for Vietnamese component makers are misplaced. Companies that have a head start in building factories to Apple requirements in China will claim the biggest rewards. Apple’s existing suppliers are guaranteed a place at the front of the line. These include BYD of China, Taiwan’s Hon Hai Precision, South Korea’s LG Display and Murata Manufacturing of Japan. The relocations will benefit the Vietnam economy through the creation of manufacturing jobs. These should be relatively well-paid for a country where the average annual income was $2,800 in 2020. Chinese workers were making $10,400, World Bank data show. China’s loss will be Vietnam’s gain. More

LONDON (Reuters) – In 1918, Soviet revolutionary Leon Trotsky told Western creditors aghast at the Bolsheviks’ repudiation of Russia’s external debt: “Gentlemen, you were warned.” He reminded them that dismissal of Tsarist-era debt had been a key manifesto of the failed uprising in 1905. More than a century later, Russia stands on the brink of another default but this time there was no warning. Few expected the Kremlin’s invasion of Ukraine to elicit such a ferocious response from the West, which has all but severed Russia from global financial and payment systems.These are Russia’s major debt events over the past century:1918: REPUDIATIONJust before the 1917 revolution, Russia was the world’s largest net international debtor, having borrowed heavily to finance industrialisation and railways. But seeing the Tsarist industrialisation drive as failing the working class, the Bolsheviks repudiated all foreign debt.”They said ‘we are not paying and even if we could, we wouldn’t pay.’ And that was a political statement,” said Hassan Malik, senior sovereign analyst at Loomis Sayles and the author of the book “Bankers and Bolsheviks: International Finance and the Russian Revolution”.Despite Trotsky’s reminder, the default shocked the world, especially France, whose banks and citizens suffered massive losses.”Investors didn’t take it seriously because they thought it would be so self-harmful,” Malik said, estimating the debt to be worth at least $500 billion at 2020 prices and possibly more. It took until the mid-1980s for Moscow to recognise some of that debt.1991: USSR TO RUSSIA Following the break-up of the USSR in 1991, Russia stopped servicing part of the overseas debt it inherited from former Soviet states. Andrey Vavilov, Russia’s deputy finance minister between 1994 and 1997, said the Russian Federation held around $105 billion in Soviet-era debt at the end of 1992, with its own debt amounting to $2.8 billion. For accepting the inherited debt, the Paris Club recognised Russia as a creditor nation, Vavilov wrote in his book “The Russian Public Debt and Financial Meltdowns”. And as Russia agreed with the group of nations to restructure $28 billion in debt in 1996, it was allowed to shift major Soviet-era debt payments to the next decade.But with a financial crisis around the corner, it would take until 2017 to clear the Communist-era arrears.1998: ROUBLE DEBT DEFAULT By 1997, crashing oil prices slashed Russian export revenues. External debt, which stood near 50% of GDP in 1995, had swelled by 1998 to 77%, according to Vavilov, who blamed hefty IMF/World Bank loans for contributing to the pile.Russia raised very little tax revenue and relied on short-term Treasury bills known as GKO to cover expenditure. But it found it harder and harder to roll these over and was soon spending ever-increasing amounts to defend the rouble. “The more the government insisted that it would stand by the currency and repay its debts, the more investors concluded it was time to sell,” said Chris Miller in his book “Putinomics: Power and Money in Resurgent Russia”.A month before the default, the IMF put together a $22.6 billion aid package, but “the market was expecting the announcement of an additional $20 billion,” Martin Gilman, the IMF representative in Moscow at the time, wrote in his book “No Precedent, No Plan: Inside Russia’s 1998 Default”. On Aug. 17, 1998, Russia threw in the towel, devaluing the rouble, announcing it could no longer pay rouble debt and introducing a three-month moratorium on some external debt.Russian banks that had invested heavily in T-bills and had extensive foreign currency exposure soon went under.2022: A FORCED DEFAULTThrough dire financial straits in 1998, Moscow made sure to continue Eurobond payments. Now it has plenty of cash but may not dodge default. To sidestep sanctions, the Kremlin is suggesting foreign creditors open Russian bank accounts to receive payments in alternative currencies to the dollar. Non-U.S. investors can in theory agree, but U.S. bondholders cannot, after a U.S. Treasury licence allowing them to accept Russian payments expired in May.Miller, author of “Putinomics”, said Russia would fight tooth and nail to dodge a Eurobond default.”The officials on the central bank and the finance ministry have built their careers on restabilising Russia as a creditor that can be trusted in international markets,” he said. “It’s built into their identity to make sure a default doesn’t happen again.” More

The Biden administration is to provide Ukraine with long-range rocket systems and precision ammunition as part of a $40bn assistance package as the invaded country fights a resurgent Russian army.The formal announcement will come later today and include $700mn worth of new military assistance including the M142 High Mobility Artillery Rocket System (Himars) and ammunition with a range of up to 80km. The package will also include sophisticated radars, Javelin missiles and anti-armour weapons, senior administration officials said.The new aid is part of a broader package of military, economic and humanitarian assistance for Ukraine that was approved by the Senate earlier this month. Moscow assessed the new US aid package “extremely negatively,” Russia’s deputy foreign minister Sergei Ryabkov told state news agency RIA Novosti.But as the conflict nears its 100th day, President Joe Biden argues in a New York Times op-ed that Ukraine needs more advanced weaponry to “more precisely strike key targets” on the battlefield.Ukraine has been calling on its allies to supply it with longer-range missiles to halt the advance of Russian troops in the east of the country where Moscow has made gains in recent days, especially around the city of Sievierodonetsk.The Zelensky government has grown increasingly alarmed at delays to weapon deliveries, particularly from the US and Germany and questioned the resolve of its western allies in the face of Russian aggression.Kyiv has pressed Washington to send weapons with an even longer range than the ones announced today.More news on UkraineThe UK and EU have agreed a co-ordinated ban on insuring ships carrying Russian oil, shutting Moscow out of the vital Lloyd’s of London insurance market. It comes a day after the EU agreed a partial ban on Russian oil imports. Here’s an explainer on how that ban will affect global markets.Citigroup, the US lender with the largest business in Russia, may retain a banking licence and some operations in the country, chief executive Jane Fraser said yesterday. In Russia, shuttered shops and disrupted supply chains illustrate how western sanctions are beginning to filter into the economy.Thanks for reading and here is the rest of the day’s news — GordonFive more stories in the news1. Police raid German asset manager over greenwashing claims The chief executive of Germany’s top asset manager, DWS Group, has resigned hours after the company’s offices in Frankfurt were raided by police over allegations of greenwashing. BaFin launched an investigation into DWS last year, following a similar probe by the US Securities and Exchange Commission.2. Shanghai reopens after two-month lockdown Commuters, traffic and joggers returned to the streets of Shanghai today after a strict 65-day Covid-19 lockdown in China’s financial capital began to ease. The restrictions were imposed on March 28 and were supposed to last for eight days but were extended and included the whole city of 25m people.

Commuters return to Shanghai’s subway after a strict two-month lockdown that prevented most residents from leaving their homes © Bloomberg

3. US Supreme Court blocks Texas social media ‘censorship’ law The Supreme Court yesterday froze a censorship law in Texas known as HB20 that would have prohibited platforms such as Facebook and Twitter from taking down content including misinformation and extremism.4. EY’s US boss quits after clashing with global chief Kelly Grier, the first woman to lead EY in the US, has quit the Big Four accounting firm after a power struggle with its global boss. Her departure highlights tensions between the group’s competing fiefdoms as it considers a radical plan to break itself up.5. Elliott to sell AC Milan to RedBird for €1.2bn Elliott Management has agreed to sell AC Milan to the US investment group led by former Goldman Sachs banker Gerry Cardinale, according to people close to the club. The deal caps a turnaround at the Italian football club, which won Italy’s top league this season, and ends Elliott’s four-year foray into the business of sport. For more on business sports news sign up to Scoreboard. The day aheadJoe Biden to hold baby formula roundtable The president will hold a virtual meeting with the leading manufacturers of baby formula amid nationwide shortages. He will be joined by health and human services secretary Xavier Becerra and surgeon-general Vivek Murthy as well as the leaders of manufacturers including ByHeart, Bubs Australia, Reckitt, Perrigo and Gerber.Denmark holds EU security referendum Danes will vote on whether to axe the country’s 30-year-old opt-out from the EU’s security and defence policies, in the latest potential huge policy change in northern Europe following Russia’s full-scale war against Ukraine. Separately, US secretary of state Antony Blinken will meet Nato secretary-general Jens Stoltenberg, who is on a multiday visit to the US.Fed Beige Book The Federal Reserve publishes its report on economic conditions, a day after President Joe Biden said he would respect the “independence” of the US central bank after a meeting with Fed chair Jay Powell. US Treasury secretary Janet Yellen, meanwhile, conceded she was “wrong” last year about the threat posed by rising inflation.Monetary policy Bank of Canada policymakers are expected to increase the country’s benchmark borrowing rate 0.5 percentage points to 1.5 per cent in an attempt to rein-in inflation. The bank in April raised interest rates by half a percentage point, the first time in more than two decades it tightened monetary policy with an increase of that magnitude.Economic data Job openings are expected to have dipped to 11.4mn in April, based on economists’ prediction for the US Department of Labor’s Job Openings and Labor Turnover Survey (Jolts) report. Private payroll figures from data processor ADP are also due this morning ahead of the monthly non-farm payrolls report on Friday.US earnings GameStop, the video game store that rose to prominence during the meme stock rally last year, reports earnings after the bell. Pet products company Chewy, Calvin Klein-owner PVH Corporation and Hewlett Packard Enterprise also deliver quarterly results this afternoon.Annual meetings Alphabet, parent company of Google, hosts its annual meeting and shareholders will vote on 10 proposals covering pay equity, sustainability and human rights.US removes UK metals tariffs Washington will scrap Trump-era tariffs of 25 per cent on steel and aluminium exports, replacing them with quotas. In return, London will suspend extra taxes on US products such as bourbon and Levi’s jeans.What else we’re readingTwelve propositions on the state of the world How do we make sense of the world? Time spent in Davos last week crystallised Martin Wolf’s answers in the form of 12 projections covering the top economic, geopolitical, social and technological issues facing society.

Martin Wolf: ‘We in the west have to manage profound changes and lethal conflicts at a time of division and disillusionment’ © James Ferguson

Tech experts urge Washington to resist crypto industry’s influence Harvard lecturer Bruce Schneier, former Microsoft engineer Miguel de Icaza and principal engineer at Google Cloud Kelsey Hightower, are among 26 leading computer scientists and academics who are urging US lawmakers to crack down on the burgeoning cryptocurrencies industry.Sifting through the stock market wreckage How should investors navigate the equities market wreckage? The answer is as simple as it is complex, writes Maike Currie: stock by stock. Some argue that the real story playing out in markets is not about value versus growth, but rather between cyclicals and defensives.Can Africa grow without fossil fuels? Not every country in the continent is endowed with renewable energy reserves. As the developed world demands emissions cuts, African leaders are asking whether poor countries can achieve high living standards without intensive use of fossil fuels.NSO’s cash dilemma Faced with a cash crunch so severe that the Israeli manufacturer of cyberweapon Pegasus could miss its payroll, Shalev Hulio had a startling suggestion. The foul-mouthed chief executive asked: why not start selling again to risky clients? To his audience, the idea was alarming, but that wasn’t all. Read the inside story here.FashionThe newly named HTSI rounds up the best of summer style for men, modelled naturally on the beach. More