Aurelia Butler

Investing.com — China’s stock market continues to tank on fears of a Covid-driven slowdown and political pressure from the U.S. on Beijing. China again refused to condemn Russia’s invasion of Ukraine after seven hours of ‘intense’ talks with the U.S. officials on Monday. Russian bombardments intensify, and European data show growing evidence of stagflation. The Fed’s two-day policy meeting starts, and oil is back under $100 a barrel as OPEC prepares to put out its monthly report. Here’s what you need to know in financial markets on Tuesday, 15th March.1. Russian bombardment intensifies after inconclusive talksRussia’s air and artillery bombardment of Ukrainian cities intensified after a day of intense diplomacy that ultimately yielded little. Chinese officials repeated that they want to avoid Western sanctions but again refused to condemn Russia’s invasion.Russian attacks have meanwhile spread to western Ukraine, while at least two of its drones have violated the airspace of NATO members Poland and Romania.  The European Union extended its sanctions list late on Monday and also imposed a ban on exports of luxury goods to Russia. That led the stock prices in that sector to underperform on what was, in any case, a bad morning for European stocks, marked by a bad miss on the key German ZEW sentiment indicator and another overshoot in French inflation.2. U.S. PPI due as Fed meeting starts; U.K. jobs data keep rate hike on trackInflation is on the radar later in the U.S. too, as February’s producer price inflation data are released. Analysts expect a 0.9% rise on the month, taking the annual rate up to 10.0% – a somber backdrop for the start of the Federal Reserve’s two-day policy meeting.The Fed is widely expected to raise the target for the fed funds rate by 25 basis points, its first rate hike since 2018. A more aggressive hike of 50 basis points is seen as less likely, following hints from Fed Chair Jerome Powell at his Congressional testimony a couple of weeks back. The sharp drop in oil prices in the last couple of days may have ended what little risk there was of such an eventuality.In the U.K. too, economic data continued to support the case for what would be a third straight interest rate rise when the Bank of England meets later this week. The jobless rate fell below its pre-pandemic level in February, while average earnings growth accelerated well above expectations.3. Stocks set to open lower  U.S. stock markets are set to open mostly lower later, under pressure from weakness in both Europe and China (see below).By 6:15 AM ET, Dow Jones futures were down 81 points, or 0.3%, while S&P 500 futures were down 0.2% and Nasdaq 100 futures were effectively unchanged. That reverses the pattern of Monday, when the tech-heavy Nasdaq underperformed.In addition to the PPI, the New York Empire State Manufacturing survey is also due, while Dole heads a sparse earnings calendar.Other stocks likely to be in focus include Nielsen (NYSE:NLSN), after reports that it’s in talks to sell itself to a consortium including Elliott Management.4. Chinese stock rout deepens; Covid wave overtakes strong dataChina’s stock rout deepened, as investors continued to flee from a growing number of risks.Talks between U.S. and Chinese officials on Monday did little to banish fears that China could get drawn into the web of western sanctions as a result of its continued support for Russia’s invasion of Ukraine, while authorities have now locked down over 45 million people in two big industrial hubs at opposite ends of the country to stop the spread of Covid-19.Technology stocks remain particularly stressed: the Hang Seng TECH index lost another 11% on Tuesday and has now unwound all of its pandemic-era gains. Other benchmark cash indices lost between 2% and 5%.That all happened despite data showing that both industrial production and retail sales were ahead of expectations in February. The data have been somewhat overtaken by events in the meantime. The yuan weakened to a two-month low.5. Oil back under $100 on China slowdown fears; API inventories, OPEC monthly report dueCrude oil prices fell below $100 a barrel for the first time this month, and spikes in other commodities also continued to unwind on fears of a Chinese economic slowdown due to its problems containing the coronavirus.  Such fears are outweighing fresh signs of geopolitical tension, with agents suspected of having links to Iran having launched the biggest-ever cyberattack on Israel late on Monday.By 6:25 AM ET, U.S. crude futures were down 5.9% at $96.97, while Brent was still holding just above the $100 level at $100.70, down 5.8%.The U.S.-based American Petroleum Institute will release its weekly inventory assessment at 4:30 PM ET, while the Organization of Petroleum Exporting Countries will release its monthly report on the global oil market. It’s expected to repeat the bloc’s message that there is no physical shortfall of supplies (despite failing to meet its own production targets in recent months). More

WASHINGTON (Reuters) – New economic projections from the Federal Reserve this week will show how far and how fast policymakers see interest rates rising this year, in a first test of the impact of the Ukraine war and surging inflation on the coming shift in U.S. monetary policy. The Fed’s policy-setting committee is expected to raise borrowing costs by a quarter of a percentage point at the end of its two-day meeting on Wednesday, a session that will set the tone for the central bank’s reaction to a war-driven energy shock that is colliding with an end-of-pandemic economic reopening and strong consumer demand.The latest quarterly economic projections, due to be issued along with a policy statement at 2 p.m. EDT (1800 GMT) on Wednesday, will show what officials anticipate in terms of key indicators, including GDP growth, inflation and unemployment. In particular, updated outlooks will signal how aggressive policymakers may be in raising interest rates and whether that could jeopardize an expected record-setting run of low unemployment.Fed Chair Jerome Powell is scheduled to hold a news conference shortly after the materials are released to discuss the meeting and outlook.As of December, policymakers saw a relatively benign battle with inflation that required only modest rate increases and no change to an unemployment rate seen lodged at 3.5% through 2024 – an employment outcome not seen since the early post-World War II boom in the 1950s.This week’s meeting “is complicated” by the need to respond quickly to inflation, now running at a 40-year high, but also by a desire to control prices without increasing the unemployment rate, said Steve Englander, head of macro research for North America at Standard Chartered (OTC:SCBFF) Bank. Fed officials in December projected that raising the benchmark overnight interest rate, or federal funds rate, by a total of three-quarters of a percentage point would be enough in 2022 to start easing inflation back towards the 2% target. Since then, price increases have accelerated – the Fed’s preferred inflation measure is currently 6% – and the outbreak of war in Europe has added a new set of risks. But Englander said Fed officials may still shy from the sort of restrictive policy that might raise the risk of recession, and rising joblessness, in coming years.”We are not convinced by the ultra-hawkish arguments” that see the Fed raising rates at each of its remaining seven policy meetings this year or signaling, at this point anyway, that rates will need to become restrictive to win the inflation fight, he said. HAWKISH MESSAGEEnglander said he expects the Fed will signal rate increases totaling 1.25 to 1.50 percentage points this year, which is less than many investors currently expect. The median estimate of economists polled by Reuters also projects the Fed will lift the target federal funds rate from the current near-zero level to a range of between 1.25% to 1.50% by the end of 2022, equivalent to five quarter-percentage-point increases. Investors in futures contracts linked to the target federal funds rate currently see the Fed hiking borrowing costs at a slightly faster pace to end the year with its policy rate between 1.75% and 2.00%.Since the onset of the COVID-19 pandemic the Fed’s projections for the U.S. economy have been out of sync with how things actually evolved.The unemployment rate fell faster, growth accelerated more quickly, and, perhaps most notably, the rate of inflation surged well beyond what was anticipated.As the Fed’s projections caught up with the economy, the policy outlook adjusted as well, with officials penciling in more and more rate hikes for the coming year and beyond.Yet as of December they held firmly to the hope of a “soft landing.”The federal funds rate would only need to rise to around 2.10% by the end of 2024 for inflation to ease, a rate that is low by historic standards and loose enough to keep economic growth above trend and the unemployment rate at a steady 3.5% through 2024.It may not all look so rosy when the dust settles on Wednesday.”Growth and unemployment should be revised lower while headline and core (personal consumption expenditures) inflation get revised higher … We expect a hawkish message from Chair Powell, who will likely reiterate that the Fed needs to get serious about price stability,” Bank of America (NYSE:BAC) analysts wrote. More

Pressure on the UK’s labour market increased over the winter, with official data showing the number of unfilled jobs rose to a record of more than 1.3mn as people continued to leave the workforce.Businesses remained keen to hire. The Office for National Statistics said on Tuesday that the unemployment rate had fallen to 3.9 per cent in the three months to January, down from 4.1 per cent in the previous quarter, while the employment rate had increased by 0.1 percentage point to 75.6 per cent.The data showed the strains rising inflation is putting on both households and businesses. The ONS said average earnings excluding bonuses were 3.8 per cent higher than a year earlier over the November to January period — equivalent to a real terms fall of 1 per cent, after taking account of rising prices.But strong bonus payments mean that total pay had just kept pace with inflation, rising by 0.1 per cent from a year earlier.Employment was a full percentage point below its pre-pandemic level, because of an increase in the number of people who were economically inactive — neither in work nor looking for a job.The ONS said the inactivity rate stood at 21.3 per cent, 1.1 percentage points higher than its pre-pandemic level, with the latest increase driven by older workers opting out.Suren Thiru, head of economics at the British Chambers of Commerce, said record levels of vacancies were a sign of “chronic imbalances in the UK labour market”, with recruitment difficulties set to remain a drag on economic output — although he also said hiring could slacken soon due to rising cost pressures, impending tax rises and a weakening economic outlook.Tony Wilson, at the Institute for Employment Studies, said unemployment was falling only because people were leaving the labour market “at a worryingly high rate”, despite record vacancies, with the exodus led by older workers and 100,000 fewer in the workforce than three months earlier.“The huge increase in older workers exiting the labour market suggests we may be reaching the limits of Britain’s jobs recovery,” said Nye Cominetti, senior economist at the Resolution Foundation, adding that wage growth in January had been stronger among high earners, leaving those who could least afford it more exposed to rising living costs.Kitty Ussher, chief economist at the Institute of Directors, said the strength of bonuses suggested pay was more likely to be keeping up with inflation in the private sector than for public sector workers, but warned that the bigger concern was the rise in economic inactivity among the over 50s.People who had built up savings earlier in their career “may have sufficient resources to weather the cost-of-living storm”, she said, but many newly inactive people who had worked in low pay sectors could be hit by rising living costs without yet qualifying for a pension.

Yael Selfin, chief economist at KPMG, said the data was showing “the limits to which vacancies can be filled by those re-entering the labour market”, warning that staff shortages could prove enduring if demand remained strong.But Samuel Tombs, at the consultancy Pantheon Macroeconomics, said the labour market “will not tighten materially further from here”, because demand for staff would be hit by April’s increase in employers’ national insurance contributions, and the workforce should start to grow again as immigration recovered and the squeeze on real wages impelled people to work longer hours.Mims Davies, employment minister, said that with vacancies at record levels, the government’s focus would be on “helping people build their skills and improve their prospects by moving into work”, while Rishi Sunak, chancellor, said the government was providing direct support worth £20bn over two years to help people with cope with the rising cost of living. More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyDue to the invasion of Ukraine, Russia is being disconnected from the global system, one economic and financial wire after another. This will devastate the economy, once the world’s 11th largest and still a G20 member. Together with a crippled financial system, it will result in a depression undermining the wellbeing of generations of Russians.What’s happening economically and financially in Russia and Ukraine won’t stay there. In addition to the tragic forced migration of millions of Ukrainians, there are consequences for the global economy and markets, both immediately and in the longer term.By the time the spillovers and spillbacks have made their way through the world, we will have faced some of the toughest economic and financial challenges of the 1970s, 1980s, and 1990s. But there is one important difference: they will all have materialised at the same time.Russia’s vulnerability to the west’s sanctions is visible in the collapse of its currency, queues outside banks, goods shortages, multiplying financial restrictions and so on. The resulting sharp contraction in gross domestic product will take years to reverse and will necessitate a costly transformation of how the economy operates internally and interacts externally.The major implications for the rest of the world, while uneven across and within countries, are a combination of challenges we’ve seen before.Due to disruptions in the availability of commodities from both Ukraine and Russia, as well as renewed supply chain breakdowns, the world faces big inflation in costs reminiscent of the oil shock of the 1970s.Also similar to the 1970s, the US Federal Reserve, the world’s most powerful central bank, is already dealing with self-inflicted damage to its inflation-fighting credibility. With that comes the likelihood of de-anchored inflationary expectations, the absence of good monetary policy options, and a stark choice for the Fed between enabling above-target inflation well into 2023 or pushing the economy into recession.Like the 1980s, mounting payments arrears will be a feature of emerging markets. This will start with Russia and Ukraine, albeit for different reasons.Increasingly, Russia will be both unwilling and unable to pay western bond creditors, banks and suppliers. In sharp contrast, Ukraine will attract considerable international financial assistance — but this will increasingly be conditional on the private sector sharing some of the funding burden by agreeing to a reduction in contractual claims on the country’s public sector.This mix of default and restructuring is likely to spread to other emerging economies, including some particularly fragile commodity importers in Africa, Asia, and Latin America. Already, they are feeling the pain of elevated import prices, a stronger dollar, and higher borrowing costs.Like the 1990s, when a surge in market yields caught many by surprise, we should also expect more financial market volatility.Investors are slowly recognising that the “buy-the-dip” strategy for investing has been undermined. That approach had proved very profitable when supported by massive and predictable injections of liquidity by central banks. But it is now facing headwinds, with US monetary policymakers having no good policy alternatives. This comes when the price of many assets is significantly decoupled from fundamentals by the many years of central bank interventions.Unlike the 1990s, however, investors should not expect a quick normalisation of Russia’s relationship with international capital markets and, with that, a recovery in its debt securities. This time will be messier and lengthier.All this has three main implications for the global economy. Stagflation has gone from being a risk scenario to a baseline one. Recession is now the risk scenario. And there will be significant dispersion in individual baseline outcomes, ranging from a depression in Russia to a recession in the eurozone and stagflation in the US.While differentiation will also be visible in market performance, this will come after a period of contagion for some as global financial conditions tighten. The major risk scenario for markets has changed, too — potentially with unsettling volatility and market malfunction.It is a risk that, unlike in 2008-09, is of less relevance to banks and, therefore, the payments and settlement system. That’s the good news. But its morphing and migration to the non-bank sector still poses blowback risks for the real economy. More

Editor Marina Ovsyannikova holds up a protest sign during a news broadcast by Yekaterina Andreyeva on Russia’s Channel One © AFP via Getty ImagesA state television employee burst on to Russia’s main state television evening news broadcast on Monday to protest against Vladimir Putin’s invasion of Ukraine, the largest sign yet of simmering discontent at the three-week war.Marina Ovsyannikova, an editor at Channel One, appeared for a few seconds live on air holding a sign that said “Stop the war — Don’t believe propaganda — They’re lying to you” and chanting “Stop the war! No to war!”Though the channel cut the feed after a few seconds, Ovsyannikova’s unprecedented intervention was an extraordinary act of defiance after Russia ramped up already draconian censorship laws when the war began in late February.Police detained Ovsyannikova under a new law that criminalises acts such as “discrediting the Russian armed forces” and spreading “fake news” of the conflict, said Pavel Chikov, whose Agora legal defence foundation is representing Ovsyannikova. Though the strictest punishments carry a potential prison sentence of up to 15 years, Chikov said Ovsyannikova was likely to be fined Rbs30,000 to Rbs60,000 ($250 to $500).Channel One told state newswire Ria Novosti it was investigating the incident.In a video recorded beforehand and posted by Ovd-Info, a website that monitors arrests at protests, Ovsyannikova blamed Putin, Russia’s president, for the war and said she was ashamed of her role in it as a Channel One employee.“What’s happening in Ukraine is a crime, and Russia is the aggressor. The responsibility for this aggression lies with one man: Vladimir Putin,” Ovsyannikova said. More