Aurelia Butler

AP Møller-Maersk has warned of growing economic risks including potential stagflation and Chinese factory closures even as the world’s largest container shipping group by profits reported a record quarter.Maersk’s chief executive Søren Skou said the current second quarter was developing very much in line with the first three months, which brought the highest profits in the Danish group’s 114-year history.But he added: “We are assuming a slowdown in the second half, a normalisation. The visibility is quite low. Mainly we see risks building up in the economy, in China with the Covid-19 policy, where they use these very hard lockdowns, some downgrades due to a very high oil price.”Maersk, which transports more than one in every six containers over the seas and is considered a global trade bellwether, last week downgraded its growth forecast in the shipping industry this year to a potential small fall.It also upgraded its profit forecast for this year to $24bn of underlying operating profit, up from its February estimate of $19bn. Skou stressed the new guidance was based on a “sharp decline” in freight rates in the second half so “we have quite some ability to weather a bit of a storm”.Maersk’s chief executive noted that the warning clouds were gathering for the second half of this year as he pointed to some economists forecasting a recession in the US around the end of the year. He said it was “too early” to tell if that was likely to happen. “We clearly see inflation, and I don’t think it’s temporary,” he added.“There are quite a number of factors that suggest we will see less growth in the second half and into next year,” he said, pointing to declining consumer and business confidence in Europe and the US as well as declining Chinese export orders.Maersk was suffering from negative volumes due to a “mind-blowing” sixth week of lockdowns in Shanghai, although it had not yet been dramatic, Skou said. But he added: “What everyone fears is that you get a big spread of Omicron that forces China to shut factories. We don’t see it yet.”His comments came as Maersk reported revenues up 55 per cent in the first quarter to $19.3bn, while net profit more than doubled to $6.8bn. Skou said regulators around the globe had investigated the container shipping industry but concluded that high profits were merely down to supply and demand dynamics, although he expected more such probes in the future.Maersk’s record results came despite operating losses of $718mn from the fallout of Russia’s invasion of Ukraine, including the Danish group leaving behind 20,000 containers in Russia and exiting operations in logistics and port terminals. It completed its last cargo operation in a Russian port on Monday, Maersk added.Maersk was continuing its share buyback programme and would in the “long term” make more acquisitions to build up its growing logistics business, but in the short term needed to digest a series of recent purchases, Skou said. He added that he didn’t “see much potential to speed up the greening” of Maersk’s ships, where it is already the industry leader, but is stepping up purchases of electric trucks. More

The US Federal Reserve is expected to raise its benchmark policy rate by half a percentage point for the first time since 2000 and formalise plans to shrink its $9tn balance sheet, as it embraces a more aggressive approach to tackling elevated inflation.At the end of its two-day policy gathering on Wednesday, analysts predict the Federal Open Market Committee will lift the target range of the federal funds rate to a range of 0.75 per cent to 1 per cent, marking the first time since 2006 that the central bank has delivered rate increases at back-to-back meetings.The policy statement will be released at 2pm Eastern time, followed by a press conference with chair Jay Powell.At its March meeting, the Fed raised rates a quarter of a percentage point from the near-zero level where they had hovered since the onset of the pandemic and signalled a series of increases to come this year. Since then, top officials have backed a much more rapid withdrawal of their policy support in light of one of the tightest labour markets in history and signs that price pressures are becoming entrenched.Taking the cue from Powell, the Fed’s top ranks now endorse the central bank moving monetary policy “expeditiously” this year to a “neutral” setting that neither speeds up nor slows economic activity. Officials have suggested a neutral fed funds rate is between 2 and 3 per cent, but many economists reckon it is much higher, given how much inflation has overshot the Fed’s 2 per cent target. Core inflation, as measured by the central bank’s preferred personal consumption expenditures price index, reached 5.2 per cent in March compared with the previous year.

Half-point rate rises are now expected in short order, with additional adjustments likely in June and July. If the Fed then raises rates by just a quarter percentage point at each of the meetings in September, November and December, the fed funds rate would hover between 2.5 and 2.75 per cent by year-end.The Fed on Wednesday is also expected to confirm its plans to shrink its portfolio of Treasuries and agency mortgage-backed securities, which has ballooned since early 2020 as it hoovered up bonds to support the economy. The central bank is set to begin reducing its holdings in June through a process called run-off, in which it ceases to reinvest the proceeds of maturing securities. The monthly pace is forecast to be increased over three months to a maximum rate of $95bn — $60bn in Treasuries and $35bn in agency MBS. When the amount of maturing Treasuries falls under $60bn, the Fed will make up the difference by reducing its holdings of shorter-dated Treasury bills.That is far faster than the Fed’s previous attempt to shrink its balance sheet, a process that kicked off roughly two years after the Fed first raised rates in 2015 after the global financial crisis. It initially set a $10bn monthly cap on asset reduction, which was gradually lifted to $50bn. More

The US is moving towards imposing hard-hitting sanctions on Hikvision, the Chinese surveillance camera company accused of enabling human rights abuses, in a decision that would affect cities from New York and London to Singapore.The Biden administration is laying the groundwork to place human rights-related sanctions on Hikvision, according to four people familiar with the internal discussions. While a final decision has not been taken, the White House wants to target the company in what would amount to the first time the US has imposed such sanctions on a big Chinese technology group.The move would have far-reaching consequences because companies and governments that deal with Hikvision, the world’s largest manufacturer of surveillance equipment, would risk violating US sanctions.Two people familiar with the situation said the administration had started briefing allies on its intentions because any measures would have ramifications for the more than 180 countries that use the company’s cameras.According to Top10VPN, a tech research company, more than 1,000 cities use Hikvision cameras. The company’s top five international markets are Vietnam, the US, Mexico, the UK and Brazil.“If enacted these sanctions are a seismic development,” said Sophie Richardson, China director at Human Rights Watch. “We have long called for surveillance technologies to be regulated so that they aren’t deployed by abusive governments. Our research shows that Beijing’s tech-enhanced repression extends both inside and outside China.”The White House and the US Treasury, which would impose the sanctions, did not comment.“The potential action by the US government, as reported, remains to be verified. We believe any such sanction should be based on credible evidence and due process,” Hikvision said in a statement. “We look forward to being treated fairly and without bias.”Washington has accused the Hangzhou-based company of supplying the Chinese government with surveillance cameras that facilitate the repression of 1mn Uyghurs who have been detained in camps in the north-western region of Xinjiang.The Biden administration has followed the Trump administration in accusing Beijing of committing “genocide”. China has denied that it is persecuting Uyghurs in the region.Congress passed the Global Magnitsky Act in 2016, giving the government more power to impose sanctions on entities involved in human rights abuses. The Treasury is responsible for putting companies that run afoul of the law on the Specially Designated Nationals And Blocked Persons list.US national security officials are also concerned that China could use Hikvision’s cameras around the world to engage in spying activities.“Adding Hikvision to the SDN list would be a strong manoeuvre against Beijing’s digital authoritarian agenda and an escalatory signal that the US government is now willing to employ sanctions against Chinese companies,” said Eric Sayers, senior vice-president at consultancy Beacon Global Strategies, who supports targeting Hikvision.“It could cost billions if governments and companies have to slowly rip and replace old Hikvision products that can no longer be repaired. It will also take years for trusted surveillance equipment vendors . . . to meet exploding demand,” he said.The costs underscored why it was “so challenging for democracies to initiate these types of defensive measures even when they are in our national interest or good human rights policy”.Former president Donald Trump put Hikvision on the commerce department’s “entity list” in 2020, which barred it from securing US technology made in America.

The Biden administration last year put the company and several other groups on the “Chinese military-industrial complex companies” list, which prohibits Americans from investing in the businesses. It has also targeted DJI, the Shenzhen-based group that is the world’s largest maker of commercial drones, and SenseTime, a Chinese artificial intelligence company that specialises in facial recognition software.The Financial Times reported last week that the administration was examining claims that YMTC, a Chinese semiconductor manufacturer that the White House said was emerging as a national champion, had breached export control restrictions by supplying telecoms company Huawei with memory chips that were made using US technology.US secretary of state Antony Blinken will on Thursday deliver the first big speech on China since the start of the Biden administration. Blinken was the first Biden official to agree with the Trump administration that the Chinese treatment of Uyghurs in Xinjiang amounted to “genocide”.Follow Demetri Sevastopulo on Twitter More

Guggenheim Partners chief investment officer Scott Minerd called time on the long-running Treasury bull market, warning interest rates could “trend higher for a generation” as the Federal Reserve tightens monetary policy to combat inflation.The comments follow an intense sell-off in the $23tn US Treasury market, the backbone of the global financial system, sparked by hawkish rhetoric from Fed officials. The yield on the benchmark 10-year Treasury note this week hit 3 per cent for the first time since 2018, having more than doubled since the end of 2021.The US central bank on Wednesday is set to raise interest rates for the second time this year, with investors and analysts expecting a bumper 0.5 per cent increase — larger than the typical 0.25 per cent raise — for the first time since 2000. “I have to throw in the towel,” Minerd, who helps oversee $325bn at Guggenheim, said in an interview. “The long bull market run in bonds has come to an end.”It marks a sharp reversal for Minerd, who said a year ago that he expected rates to fall and potentially even turn negative in the US. As recently as March he told CNBC that he thought rates were in the neighbourhood where he would expect them to “peak out”. He said on Tuesday that he does not expect rates to “skyrocket higher” immediately, but that they could “chop” around before rising again.His concern now is that rather than allowing the market to determine lending conditions, the Fed will continue to lift interest rates, pushing the US economy into recession. “Rather than following a sound policy . . . we’ve decided we’re going to raise rates and shrink the balance sheet so the Fed will have inflation credibility,” he said. “My concern is as we roll over and we see inflation starting to slow, the Fed will . . . not recognise where the neutral rate is and we’ll ultimately have a collision.”The neutral rate refers to an ideal level for interest rates at which they contain inflation while still allowing the US to maintain full employment.Minerd warned policymakers could not know how tight conditions already were. Companies are having a harder time raising capital, with gauges of US financial conditions back to pre-pandemic levels.Tighter policy from the Fed could “induce a financial accident” and he pointed to a sell-off in the $46tn US stock market as a “likely place” for that to occur.“We have never brought inflation down by more than 2.5 per cent without inducing a recession,” he said. “I don’t think they’re setting themselves up for a soft landing,” he said, adding: “There’s an inevitability to a recession,” with some European countries “sliding” towards one as well. For a brief period this year, the policy-sensitive two-year yield had risen above the 10-year yield — a yield curve inversion — one of the most widely used and reliable indicators of an impending recession. That suggests investors believe monetary policy will tighten faster than the US economy can handle, and tip it into recession sometime in the coming two years. The end of the bond bull market would have significant implications for other markets. The uptick in Treasury yields has lifted borrowing costs for companies and also driven mortgage rates higher. The rally in US stocks to record levels in 2021 was built on low interest rates, and the surge in yields has begun to hit performance on Wall Street. More

Eurozone borrowing costs have surged to multiyear highs as the European Central Bank reins in its stimulus programmes, underscoring the challenge for policymakers in trying to cool inflation without upending bond markets.Germany’s 10-year government bond yield — a benchmark for the eurozone’s debt markets — climbed above 1 per cent for the first time since 2015 on Tuesday, as investors braced themselves for the ECB to stop adding to its €4.9tn bond portfolio in the next few months, followed by a series of interest rate rises, starting as early as July. Investors are also demanding a bigger premium in borrowing costs to lend to riskier, more indebted eurozone countries at a time when many are already facing increasing economic headwinds. Italy’s 10-year yield spread versus Germany, considered a barometer of political and economic risks in the euro area, climbed as high as 1.9 percentage points on Tuesday, its widest since the early stages of the pandemic when investors dumped riskier eurozone government debt.“What we are seeing in markets is the realisation that ECB tightening is at our door,” said Rohan Khanna, a fixed-income strategist at UBS. “It’s a double whammy for the most vulnerable sovereigns of increasing funding costs right when growth expectations are being downgraded. I think the market will try pushing Italian spreads through [2 percentage points] to really test what the ECB is going to do about it.”Italy finds itself in the market’s crosshairs thanks to Rome’s vast debt load, which was driven to a record high of close to 160 per cent of gross domestic product last year by the economic fallout from the pandemic.Frederik Ducrozet, a strategist at Pictet Wealth Management, said his “rule of thumb” during the eurozone debt crisis a decade ago was that the “danger zone” for the spread between 10-year bond yields of Italy and Germany was anything above 2.5 percentage points. But he said “this pain threshold might be higher today, say up to [3 percentage points] for spreads . . . because the prospects for nominal GDP growth are higher”.Eurozone governments are expected to issue almost as much extra debt this year as last year, but the ECB is due to purchase far less of it. Ducrozet estimated the ECB would buy only 40 per cent of net eurozone government debt issuance this year, down from more than 120 per cent in the past two years. In Italy, net issuance of government debt is expected to be about €80bn this year, slightly lower than last year, and the ECB is expected to buy about 45 per cent of it, down from 140 per cent last year.Some economists say this will be manageable thanks to a combination of economic growth, high inflation, low interest rates and more than €210bn of grants and cheap loans from the EU’s Next Generation recovery fund.However, investors have been reassured by Italy’s relative political stability since Mario Draghi became prime minister in early 2021 and economists fear this could be disrupted by next year’s election if it leads to the departure of the 74-year-old former European Central Bank president.Erik Nielsen, chief economics adviser at UniCredit, said “in six months time, I bet the conversation will be all about the Italian election and what happens after Draghi.”“I worry about Italy,” added Ludovic Subran, chief economist of Allianz, pointing out that Italy’s economy shrank 0.2 per cent in the first quarter, compared to the previous quarter, and is likely to be hit harder than most of its peers by an EU embargo of Russian energy imports and China’s Covid lockdowns.Italy has an average debt maturity of seven years and it can still refinance many longer-term bonds maturing this year at lower interest rates. But that could change if the recent rise in yields persisted, Ducrozet said.Ducrozet added that markets were still pricing in “the implicit assumption” that the ECB would step in to cap spreads on the debt of economically-weaker eurozone countries if needed. The central bank has said it can be flexible in how it reinvests the proceeds of maturities among the bonds it owns to tackle any fragmentation in bond markets.In addition, the ECB has said it could introduce a “new instrument” to support countries facing a sharp increase in borrowing costs as rates rise. But Luis de Guindos, its vice-president, said last week the governing council had “not discussed any new anti-fragmentation programme in detail”.The fact that such discussions, however vague, are taking place indicates that the ECB is nervous about the impact of the impact of tighter monetary policy on spreads in the eurozone and particularly Italy.However, it will be tough to design such an instrument without further blurring the line between monetary policy and the financing of government deficits, according to Robin Brooks, chief economist at the Institute of International Finance.Instead, the sensitivity to sovereign spreads is likely to slow the central bank’s shift to tighter policy, making it highly unlikely that the ECB will deliver the 0.9 percentage points of rate rises priced by markets this year, he argues.“ECB policy normalisation has always seemed to me to be a fanciful thing,” Brooks said. “How do you do it when you have these debt overhangs? The markets are saying that having debt-to-GDP of 150 per cent is a major issue. If they continue on this tightening path I think you will see Italian spreads widen further, perhaps in a disorderly way.” More

(Reuters) -Australia and New Zealand Banking Group beat estimates for first-half profit on Wednesday, helped by the release of pandemic-era provisions and home loan growth in New Zealand, and forecast improved second-half margins as interest rates rise.The lender said it expects margins to be partly helped by higher deposit-driven earnings growth as the banking sector steps into a new period of higher borrowing rates.The Reserve Bank of Australia on Tuesday delivered its first rate hike in over a decade. The Reserve Bank of New Zealand has raised rates at its last four meetings to levels not seen since June 2019.”Rising rates – that’s going to hurt some people, that’s going to take money out of people’s pockets. But at this point, people are well prepared for it,” Chief Executive Officer Shayne Elliott said.Shares of the lender were up 2.1% at A$27.830, outpacing a 0.7% rise in the ASX 200 benchmark index, and marking ANZ’s biggest intraday pct jump since March 17. (AX)Spurred by a rise in revenue from institutional customers, strong home loan momentum in New Zealand, cost controls, and release of credit provisions worth A$284 million, cash profit from continuing operations rose 4.1% from a year ago to A$3.11 billion ($2.2 billion), ahead of a Visible Alpha consensus estimate of A$2.99 billion.However, it fell 3% from the prior half. “The weak core profit result is likely to concern investors today,” analysts at Citi said in a note. “However, second-half is expected to improve as rising rates starting to grow net interest margins.”Net interest margin – a key measure of profitability – eased to 1.58% in the half from 1.65% in the second half https://yourir.info/resources/4d216b570d08af30/announcements/anz.asx/3A579444/ANZ_ANZ_Full_Year_Results_Dividend_Announcement_Appendix_4E.pdf of 2021.”As I look at the environment in which we had to operate in the half, I actually think it was a very solid result… we managed margins tightly,” Chief Financial Officer Farhan Faruqui said.ANZ, which has lost Australian home loan market share since 2019 amid claims of slow processing times, said capacity improved in the half, and that it was on track to grow in line with other major domestic banks by the end of the financial year.It also announced plans to establish a new listed parent holding company that would control two wholly-owned distinct groups of entities: banking and non-banking groups, mirroring organisational structure among global banks.The bank declared an interim dividend of 72 Australian cents per share, up from 70 Australian cents a year earlier.($1 = 1.4088 Australian dollars) More

ORLANDO, Fla. (Reuters) – The highest inflation in decades is unraveling whatever policy consensus there was between the world’s major central banks since the Great Financial Crisis and global markets could buckle under resulting waves of stress and volatility.A turbo-charged dollar, which often both reflects and fuels financial market stress, risks a vicious cycle as a scramble for dollars intensifies, tightens global financial conditions and increases volatility.The dollar’s surge to its strongest level in 20 years not only reflects how aggressive investors expect the Federal Reserve to be in raising interest rates, but also how fragmented the global central bank landscape is.While the U.S. monetary authority appears strapped in for the most aggressive tightening cycle since 1994 both in scale and speed, others are at various stages of the battle against inflation, and with varying degrees of appetite for the fight.The Fed’s expected path stands in stark contrast to its three biggest peers. Central banks in Japan and China are still easing policy and the European Central Bank will struggle with its plans to tighten amid recession fears from a Ukraine-related energy shock.Whatever path major central banks follow, the burst of global inflation and fragmented policy response has put a fire under global market volatility – U.S. Treasuries implied volatility is the highest since 2009 and global financial conditions are also the tightest in 13 years.As analysts at Bank of America (NYSE:BAC) put it, two years of pandemic-fueled quantitative easing worth around $11 trillion globally is ending and markets’ ‘volatility anchor’ has been removed, threatening the disorderly moves in rates and currency markets that policymakers are desperate to avoid. “Market panics (are) often associated with divergent central bank policy objectives,” BofA wrote on Friday. Graphic: Dollar and Fed tightening cycles – https://fingfx.thomsonreuters.com/gfx/mkt/dwvkryqdmpm/DOLLARFED.jpgGraphic: Dollar and US recessions – https://fingfx.thomsonreuters.com/gfx/mkt/gkplgkqwovb/DOLLARRECESSION.jpg $1 TRILLION DEBTThe dollar index, a measure of the greenback’s value against six major currencies, is the highest since 2002. Although it has risen rapidly this year and may be due a profit-taking pause, many analysts reckon it still has room to appreciate further.A stronger dollar makes it more expensive to service dollar-denominated debt for overseas borrowers. According to Institute of International Finance estimates, well over $1 trillion of dollar debt held in emerging economies will mature by the end of next year. A rising dollar and U.S. borrowing costs have slammed global financial markets – the S&P 500 just had its worst January-April performance since the 1930s, while U.S. bond market volatility and Goldman Sachs (NYSE:GS)’s global financial conditions index are the highest since 2009. The additional problem policymakers face is essentially the irrationality and herd-like behavior of financial markets. Once currency traders sense weakness or fracture, they go for the jugular, and market overshoots can exacerbate underlying economic problems. ECB Executive Board member Isabel Schnabel in a March 17 speech nodded to the danger of allowing policy divergence to widen too much.”A reaction function that differs materially from that of other central banks facing a protracted period of above-target inflation risks amplifying the energy price shock by weighing on the exchange rate, thereby adding to the burden on real household income,” she warned.Chris Marsh, senior advisor to Exante Data and a former economist at the International Monetary Fund, says the wide divergence can only continue for so long before other central banks have to follow the Fed. “If the ECB and others don’t keep up, they end up importing inflation. And inflation is already very high. So to not keep up with the Fed will be very difficult for them,” Marsh said. Graphic: Dollar and G3 yield spreads – https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkmdjzpx/DOLLARSPREADS.png Related columns:Given what followed, emerging markets fear 1994 Fed redux (Reuters, April 25)Pumped-up dollar compounding global liquidity squeeze (Reuters, April 22)Hedge funds’ bullish dollar view distorted by yen outlier (Reuters, April 18)Euro FX reserve demand returns after years of neglect (Reuters, April 13) (The opinions expressed here are those of the author, a columnist for Reuters) (By Jamie McGeever; Editing by Andrea Ricci) More

SEOUL (Reuters) -North Korea’s isolated economy will not be insulated from global economic headwinds caused by the Ukraine war and the COVID-19 lockdowns in China, analysts said, with recently resumed border trade taking a hit and inflation exacerbating food shortages.Strict international sanctions ban or restrict wide categories of North Korean imports and exports, and the country locked down its border for years to prevent COVID-19 outbreaks. Natural disasters such as flooding have also taken a toll on harvests and damaged infrastructure.The trickle of trade and aid that resumed over the land border with China in January probably did not alleviate reported food shortages – and trade was suspended again last week as COVID-19 cases rose in China, analysts said. Satellite imagery shows goods sitting for weeks or months in quarantine at land and sea port facilities. “As food prices in North Korea do often move in tandem with global prices, we’re likely to see current food price hikes mirrored in North Korea as well over time,” said Benjamin Katzeff Silberstein, an economic expert with the U.S.-based Stimson Center.International aid organizations have pulled most of their staff from the country amid the prolonged border shutdowns, and say it is difficult to know exactly how bad the situation is.Last year the U.N. special rapporteur on human rights in North Korea said the country’s most vulnerable people risk starvation during the COVID-19 pandemic.North Korea’s government has acknowledged a tense food situation but has disputed reports that it is failing to provide for residents.The World Food Program estimated that even before the pandemic hit, 11 million people – or more than 40 percent of the population – were undernourished and required humanitarian assistance. BOON FOR ILLICIT COALHigher energy prices globally will most likely help North Korean coal producers, Katzeff Silberstein said.North Korean coal – which is banned from export by United Nations Security Council resolutions – costs a fraction of the global average. But prices still have soared 40% in the past six months, according to Seoul-based Daily NK, which tracks commodities prices in the North. Coal smuggling remained at relatively low levels because of sealed borders, but increased in the second half of last year, according to the latest annual U.N. report by independent sanctions monitors.That may help fill the regime’s coffers, but corresponding increases in domestic coal prices could cause further harm for residents at home. It is challenging to separate effects of the Ukraine crisis from other factors, but North Korea is clearly susceptible to global economic trends, said Christopher Green, a Korea specialist at Leiden University in the Netherlands. “Very broadly, if China entered a recession – which would also be impossible to blame on Ukraine given all the other issues China faces – then exports from North Korea would fall,” he said.’NOT SUSTAINABLE’Leader Kim Jong Un has vowed to improve living standards with major construction projects and rural development, and has held a steady stream of civilian and military displays this year. Kim unveiled thousands of new apartments in Pyongyang last month, and state media reported that some agricultural areas were seeking to improve crop yields by using “homemade manure”, upgrading tractors, and adopting new methods for raising rice.Authorities have also taken steps to protect against floods and droughts, including deploying more pumps, state media reported.Many of these efforts rely on mobilising masses of labourers because of a lack of heavy equipment and supplies, said Lee Jongkyu, a senior fellow at the Korea Development Institute in Seoul.”In the short term perspective, these projects might be effective, but it’s not sustainable for the mid- to long-term perspective,” he said. More