Aurelia Butler

WASHINGTON (Reuters) – The Biden administration is increasingly feeling it has little control over short-term inflation, officials say, and is looking for ways to offset the political risk from price hikes in the months leading up to November’s elections.Data last week showed inflation still at 40-year highs, but slightly off an earlier peak. The economy and Biden’s handling of it are top issues for voters, and lowering the cost of meat, gas and other household staples is a key way Biden and his fellow Democrats could defend control of Congress in November’s midterm elections, strategists say.But any U.S. president’s ability to cut prices in the short run in global markets for products from oil to grains is limited, White House advisers say. Influence over supply chain bottlenecks related to China’s COVID shutdowns and Russia’s invasion of Ukraine, both driving up prices, are even further out of reach, they say.The administration expects inflation to ease further from its recent breakneck pace as the year progresses, the advisers said, but not to a level that would be deemed acceptable.In response, the White House, which until recently depicted the inflation surge as transitory, has developed a three-prong strategy: act as aggressively as it can on prices it thinks it can impact on the margins, stress the role of Russian President Vladimir Putin and the pandemic, and attack Republicans, suggesting their economic policies would be worse.The untested shift in messaging comes after some Democrats told the White House it was too slow to take the political problem of inflation seriously. Democrats say it is too early to tell if the new messaging will sway voters.”There was some over-promising and under-delivering,” said Jason Furman, economics professor at Harvard University and a former top adviser to President Barack Obama. “Now the messaging is more realistic.” But he said it was unclear whether the new messaging would satisfy voters.Political strategists say it is important for President Joe Biden to communicate empathy and action even in the absence of good options as an otherwise divided Republican party unites around attacking the president over “Bidenflation.””They need to communicate that families are struggling but here’s what we’re doing today,” said Democratic pollster Celinda Lake, who added that voters in focus groups were identifying the issue as a critical one for Democrats to address. “Just relentlessly being out there doing something every week, every day on these issues.”Republicans blame Biden’s $1.9 trillion American Rescue Plan and other policies for driving inflation, although prices started to jump before he took office and the phenomenon has been global.EXECUTIVE ORDERS, MESSAGINGFor its part, Biden’s White House has criticized companies for taking home record profits and making stock buybacks while charging high prices. It has also tried to increase competition in industries like meat-packing, partnered with retailers to unsnarl supply chains at ports and railways, and released oil from strategic reserves to try to push down prices.The White House’s strategy ahead of the Nov. 8 elections is to identify and use as many executive actions as possible to provide relief to Americans struggling with high costs.Future actions could stretch from student loan relief to gasoline tax holidays and healthcare subsidies.But some policies could prove to be double-edged swords. Cutting student loans helps the borrowers but increases inflation for the economy as a whole, said Furman.Other potential measures, especially cutting import tariffs, would lower costs a bit but are fraught with political risks of their own and may not meaningfully alter the fundamental inflation dynamics, officials said.What’s off the menu? Immigration reform. Biden proposed a comprehensive reform package in 2021 that would have allowed more workers to fill domestic labor shortages that have raised wages and prices, but legislation has failed to move through Congress.Restrictive immigration policies adopted under the prior administration were retained by Biden, including COVID-19 restrictions. Policy changes kept some 3.4 million additional immigrants from entering the United States from 2016 to 2021, the Kansas City Federal Reserve Bank calculates, contributing to worker shortages.Biden will continue to emphasize the role the Fed plays in controlling prices, officials said. He will also underline his support of the central bank’s move to sharply hike interest rates.He further plans to highlight the inflationary impact of Russia’s blocking of Ukrainian grain exports and what he argues is the necessary cost of isolating Putin through steps such as restricting the use of Russian oil, even though they raise prices for Americans.Meanwhile, Democrats will continue to tell voters that Republicans have no serious policy plans. Republicans have endorsed no detailed recommendations to address inflation, but they support cutting taxes and budget deficits, as well as easing regulations for oil and gas producers. More

“The war is having an impact beyond Ukraine and it’s something that we’re very concerned about,” she said in Warsaw on Monday. “I’m afraid we really have a global crisis on our hands.”On Monday, Wheat jumped by the exchange limit to near a record high after India’s move to restrict exports, exposing just how tight global supplies are amid the conflict in Ukraine. Group of Seven agricultural ministers nations criticized the move for making the world’s crisis worse.Yellen is in Europe to attend the G-7 meeting of finance ministers and central bankers in Germany later this week. She said that officials will release an action plan to address food insecurity. It “will include the ways in which you’re stepping up to provide surge support,” she said.“I’d like to recognize the efforts the Polish government and other neighboring governments are making to help Ukraine develop roots for its agricultural exports, for wheat, for commodities, that global markets desperately need and are very hard to export because of the blockades of Odesa and other ports,” she added.The US has pledged $40 billion in aid for Ukraine and $5 billion for food security “that’s making it’s way through the Senate,” Yellen said. “We want to make sure that the assistance gets to where it’s needed.” More

Meyrick Chapman is the principal of Hedge Analytics and a former portfolio manager at Elliott Management and bond strategist at UBS.It would have been fun to eavesdrop on the European Central Bank’s meeting in April. The eurozone monetary family shindig was probably even more tense than normal. On one side of the room are the inflation-allergic Germans and their (relatively) newfound friends. On the other side those freaking out about the damage higher rates will do to their economies and debt burden. In the end, last month’s press conference suggested the hard-nosed family members won the day. It seems the ECB will soon follow the Federal Reserve and raise interest rates. Christine Lagarde basically said as much last week. The ECB may even start to reduce their holdings of government debt at some point. There was probably some grumbling from some family members. The grumbling has probably increased since. Yields on Italian debt have shot higher and spread to German 10-year bonds has widened a lot. There have been references in bond markets to president Lagarde’s famous quip from March 2020 that the ECB is “not here to close spreads”. Social media is awash with commentators metaphorically rubbing their hands at the prospect of another European sovereign problem emerging just as the ECB’s asset purchase programmes are winding down.Spreads have widened considerably, and this will get worse once the ECB ends QE and starts hiking interest rates. Italian long-term bond yields are now 2 percentage points higher than for 🇩🇪 . This fragility will again put €zone policymakers to the test.Chart @RobinBrooksIIF pic.twitter.com/I1RqGyWNkv— Philipp Heimberger (@heimbergecon) May 9, 2022
But isn’t the lesson of the dysfunctional eurozone family that they always seem to threaten a fight on the front lawn, then end up grudgingly hugging and going back inside together? There’s at least a chance that will be the outcome again this time.No one is pretending that European rates are going as high as those in the US. The entire ECB policy shift seems as much an effort to stop a steep decline in the euro as it is an attempt to rein in inflation. And while rates may rise and the ECB asset purchases may end, there are a few tricks that can be deployed if things get unruly.There’s the ECB’s hotly anticipated ‘crisis management tool’, which is reportedly in the works. So far, the details are a well-guarded secret. Maybe it will resemble something like the OMT scheme — though hopefully without the shame.It is equally possible the tool will rejig existing asset portfolio. The Pandemic Emergency Purchase Programme (PEPP) has purchased nearly €1.7tn of government bonds. Unlike the earlier Asset Purchase Programme (APP), the PEPP guidelines are remarkably flexible. Here are some snippets from the statement announcing it, with FTAV’s emphasis:For the purchases of public sector securities, the benchmark allocation across jurisdictions will continue to be the capital key of the national central banks. At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.And from a subsequent statement:The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary stance.Reinvested securities surely will follow the same permissive allocation as the original PEPP investments.So, it’s possible the ECB may raise interest rates and start QT to unwind asset purchases in some member states (like Germany) while its reinvestment programme continues to buy additional securities of vulnerable member states. It is not often you see a central bank simultaneously ease and tighten policy. Such flexibility has become a hallmark of an ECB that has needed to be creative to keep the family together. You can be sure that if a pandemic can be used to introduce such flexible rules, a European war will present an ideal excuse for creativity. As the Council said when they announced the PEPP in March 2020:To the extent that some self-imposed limits might hamper action that the ECB is required to take in order to fulfil its mandate, the Governing Council will consider revising them to the extent necessary to make its action proportionate to the risks that we face.Moreover, if that all fails and peripheral yields continue to rise, there is always the prospect that domestic investors will ride to the rescue. When Italian 10-year government yields rose above 4 per cent in 2011, Italian investors enthusiastically bought their own debt even as foreigners sold on concerns about Italian fiscal sustainability. When Italian yields fell below 4 per cent in 2014, the domestic buying stopped, and Italian investors started to buy foreign assets for higher returns. Notably, Italy’s net international investment position has swung from a big deficit to a big surplus. With Italian yields rising to over 3 per cent earlier this month, and financial markets everywhere looking risky, it may not be long before domestic investors start to buy Italian bonds again, irrespective of ECB policy. They may be gratified to know that the substantial PEPP reinvestment programme may be persuaded to over-allocate to Italian government bonds if things continue to be challenging. More

Moscow Mayor Sergei Sobyanin said to preserve thousands of jobs Renault (EPA:RENA)’s plant in the city would be used to restart production of the Soviet era Moskvich brand. The Western carmaker most exposed to the Russian market, Renault said on Monday its holding of nearly 67.69% in Avtovaz would be sold to the Russian Central Research and Development Automobile and Engine Institute, called Nami.”The closing of these transactions is not subject to any conditions, and all required approvals have been obtained,” it added.Two sources familiar with the situation told Reuters that Renault Russia and the Avtovaz stake were sold for a symbolic one rouble ($0.016) each. Its 100% shares in Renault Russia will go to the city of Moscow.Renault had valued its Russian assets at 2.2 billion euros ($2.29 billion) last year.”Today, we have taken a difficult but necessary decision, and we are making a responsible choice towards our 45,000 employees in Russia,” the carmaker’s CEO Luca de Meo said.The move preserved the group’s performance and its ability to return to the country in future in a different context, he added. De Meo has been clear about the French carmaker’s desire to return to Russia after the war in Ukraine is resolved and normal relations are eventually restored. The iconic Moskvich, which translates as a native of Moscow, ceased production around two decades ago. But Mayor Sobyanin said Moscow was working with truck maker Kamaz Inc and Russia’s industry and trade ministry to localise as much vehicle component production in Russia as possible.Renault said in March that it would suspend operations at the Moscow plant amid mounting pressure over its continued presence there since the start of the conflict in Ukraine.Renault, 15% owned by the French state, confirmed a non-cash writedown of nearly 2.2 billion to reflect the potential costs of suspending Russian operations.More than 400 companies have withdrawn from Russia since it invaded Ukraine on Feb. 24, leaving behind assets worth billions of dollars.Russia calls its actions a “special operation” to disarm Ukraine and protect it from fascists. Ukraine and the West say the fascist accusation is baseless and the war is an unprovoked act of aggression.($1 = 63.8370 roubles)($1 = 0.9593 euros) More

The rouble is the world’s best-performing currency this year http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html, although this is due to artificial support from capital controls that Russia imposed to shield its financial sector in late February after sending tens of thousands of troops into Ukraine.It was not clear whether President Vladimir Putin’s demand for gas payments in roubles was also supporting the currency.At 1131 GMT, the rouble was 2% stronger against the dollar at 63.21, hovering near its strongest mark since early February 2020 of 62.6250, which it hit on Friday.”The current capital control measures brought the rouble back to pre-pandemic levels,” Rosbank analysts said in a note, forecasting that the rouble would slide to 90 to the dollar by year-end.”In the near future, a new committee on FX market regulation may adjust these restrictions, but until then, the USD/RUB consolidation may stick to the lower bound of the 63.0-70.0 range.”Against the euro, the rouble rose 2.3% to 65.60, staying near its strongest level since June 2017 of 64.9425, which it touched on the Moscow Exchange on Friday.Moscow’s standoff with the West and fears of a new sanctions package to punish Russia for what it calls “a special military operation” in Ukraine are in focus. But their impact is cushioned by mandatory conversion of foreign currency by export-focused companies and by other restrictions.”The rouble firming today may be moderate but the dollar rate could gradually decline to 62,” Promsvyazbank analysts said in a note.Russian stock indexes jumped higher.The dollar-denominated RTS index was up 4.2% at 1,180.1 points. The rouble-based MOEX Russian index rose 2.7% to 2,368.6 points.For Russian equities guide seeFor Russian treasury bonds see More