Aurelia Butler

As war in Ukraine sparks renewed commodity price surges and threatens more supply chain disruptions, a rethink is underway on how fast the Fed will raise rates, given that inflation is at a 40-year high near 8% and rising.A quarter-point increase is seen as a done deal at the Fed’s Wednesday meeting, with another six or seven moves expected this year. Traders are also re-assessing the “terminal” rate – the point were the federal funds rate will peak.Currently, the expectation is for the terminal rate to be hit in the second half of 2023, and on Monday, the implied yield – essentially a proxy for the fed funds rate – on September 2023 Eurodollar contracts rose to 2.57%. That is up 57 basis points in a week, and up 100 bps this year. The fed funds range is currently 0-0.25%.This means traders now anticipate a terminal rate of around 2.50%. For most of this year, the Eurodollar market indicated a terminal rate closer to 2%. The new pricing gels with the 2.5% median forecast of Fed policymakers.Goldman Sachs (NYSE:GS) economist Sven Jari Stehn said his bank’s analysis indicates a terminal rate of 2.75%-3%. “When we think of the post-COVID world, with tight labour markets, elevated inflation and green investment, all that should support higher rates,” Stehn said. Eurodollar futures not only suggest a higher peak but also imply rates will stay higher for longer. Readings are distorted by thinner liquidity further down the curve, but current pricing shows rates staying above 2% for the next decade .The risk, however, is that too-aggressive a tightening could be a mistake that chokes the economy and heralds recession, particularly at a time of high energy prices. “One thing is clear – the Fed’s guidance will change from hawkish to dovish at some point,” Citi analysts told clients. “There is uncertainty around when the Fed will have to engage in easing but this cycle will very likely be shorter than previous cycles.” More

BRASILIA (Reuters) – Brazil’s federal government plans to announce on Thursday a program providing some 165 billion reais ($32 billion) of economic stimulus during the current election year, three people familiar with the plan told Reuters.The so-called ‘Income and Opportunity Program’ includes an early payment of some public pension checks, a measure letting workers withdraw some cash from a severance fund known as FGTS, a new microcredit program, and an expansion of payroll-deductible loans, said the sources, speaking on condition of anonymity.They said at least 30 billion reais will be released from FGTS, allowing for up to 1,000 reais per worker, a move Economy Minister Paulo Guedes had already indicated was on its way.Both the administrations of President Jair Bolsonaro and his predecessor Michel Temer had already implemented measures to free up those funds. Under normal circumstances, money can only be withdrawn from FGTS in specific situations, such as if a worker retires, is fired, or wants to buy property.The government will also bring forward the payment of some public pension checks, the sources said, repeating a measure taken in 2020 and 2021 during the coronavirus pandemic. The expected July payment would reach pensioners’ pockets before October elections.Bolsonaro, who is widely expected to seek re-election, is currently trailing in opinion polls to former leftist President Luiz Inacio Lula da Silva. The creation of a microcredit program and the expansion of payroll-deductible loans aim to allow workers access to resources that could be invested in small businesses, the sources said.($1 = 5.0949 reais) More

“We are in Ottawa and have just left the Canadian Ministry of Agriculture with … great news: the opening up of the country’s pork and beef market,” Brazilian Agriculture Minister Tereza Cristina Dias tweeted.Asked for comment, the Canadian Food Inspection Agency told Reuters it “approved the import of raw and cooked poultry meat, pork and pH matured beef from Brazil” last Friday.Dias, who traveled to Canada to speak with potash companies and other suppliers of fertilizers said Brazilian meatpackers will now be able to export products to more than 200 markets around the world, which was her goal when she took over the ministry more than three years ago.Brazilian pork and poultry lobby ABPA welcomed the announcement, but said the clearance for pork only extends to establishments in Santa Catarina, as the Southern Brazilian state was the only one recognized as free of foot-and-mouth disease without vaccination at the time of the initial request.Santa Catarina accounts for more than 50% of Brazil’s pork exports, ABPA said.Negotiations between Brazil and Canada continue relating to others areas now recognized as free of the disease by the World Organization for Animal Health. More

Good eveningEnergy prices are the hot topic at meetings of EU finance ministers today and tomorrow as they grapple with the threat to growth from rising inflation. As our Europe Express newsletter details, the bloc is split between interventionists and free marketeers who are at odds over how to tackle the price shock caused by the Ukraine crisis. (You can sign up for Europe Express here).What is not contested, however, is the size of the task at hand. A new report today says the ending of energy imports from Russia could knock up to 3 per cent off Germany’s GDP and lead to “major economic slumps and upheaval” if supplies are not replaced. Countries across Europe are scrambling to find alternative energy sources. Italy has announced plans for two new offshore regasification plants that would cut its dependence on gas piped from Russia and enable it to take more from other suppliers. Meanwhile, UK prime minister Boris Johnson is considering lifting the ban on fracking, although as the FT Lex column points out, on a small crowded island, this is easier said than done.The UK is also considering a 20-year extension of the Sizewell B nuclear power plant to 2055 as part of a new “energy supply strategy” to be published next week.Manufacturers are feeling the heat as their energy costs soar. British Steel has lifted its prices by an estimated 25 per cent, its highest ever increase. The move by Britain’s second largest steelmaker will exacerbate pressure on construction companies and adds to costs of the HS2 high-speed railway line, the country’s largest infrastructure project.For the UK’s gas and electricity networks, it’s a very different story. New analysis shows them to have higher profit margins than any other sector, fuelling calls for intervention as bills soar for households as well as businesses. Analysis published on Friday shows those households face a £38bn hit to their budgets from an expected doubling in electricity and gas bills, piling pressure on chancellor Rishi Sunak to impose a windfall tax on British energy producers.The surge in oil prices is also causing investors to cut their exposure to oil-dependent industries such as airlines that have barely recovered from the blow of the pandemic.“It is only a minor exaggeration to say that the 1973 oil shock created the modern global economy,” says the FT Editorial Board, which draws parallels with the current crisis.Amid the gloom, columnist Rana Foroohar argues the crisis provides an opportunity for an EU-US “grand bargain” on energy security and climate change. A temporary increase in US production could help Europe reduce its dependence on Russian oil and gas, she says, while Europe could buy more US liquefied natural gas, which is poised for a jump in supply by 2024.The west will undoubtedly feel significant pain in the short term from a new oil shock, the FT concludes, but in the longer term it will drive speedier adoption of renewables, or as German finance minister Christian Lindner dubs it, the “energy of freedom”.Latest newsUkraine to experience ‘deep recession’ this year, says IMF The UN’s World Food Programme plans to scale up its operations in Ukraine to provide emergency food or cash aid to at least 2-3mn peopleUkrainian president Volodymyr Zelensky to address rare joint session of US Congress on WednesdayFor up-to-the-minute news updates, visit our live blogNeed to know: the economyIt’s an important week for central banks. The US Federal Reserve has to juggle the effect of the Ukraine crisis with its first interest rate rise since 2018, likely to be announced on Wednesday. US government bond prices dropped today ahead of the Fed meeting, sending the yield (which moves inversely to prices) on the 10-year US Treasury note to its highest level since July 2019.The Bank of England is also poised to raise rates on Thursday to their pre-Covid level as part of its fight against surging inflation, despite the weak outlook for growth.Russia’s finance minister accused the west of trying to force an “artificial default” as Moscow prepares to make key interest payments on its foreign currency debt in roubles. Sanctions have frozen about $300bn of Russia’s $643bn in foreign currency reserves, limiting Moscow’s ability to support the rouble and raising the possibility of a first default since 1998.Latest for the UK and EuropeWhat do antibacterial wipes, sports bras and meat-free sausages have in common? They’ve all been added to the virtual “basket” of 700 items used to calculate UK inflation. Departures from the annual shake-up include coal and the single doughnut.Is the UK economy heading back to the 1970s? Some dismiss the comparison by pointing to today’s economic framework of weaker trade unions and an independent Bank of England with clear, legislated inflation targets. Karen Ward, a strategist at JPMorgan, is not so sure.It’s a bewildering time for investors trying to decide where to put their money against a backdrop of inflation, war and volatile markets. Navigate your way through with our guide to UK Isas. Global latestThe Russian invasion of Ukraine will have an “enormous” impact on global food supplies through higher prices and disrupted supply chains. Both countries are leading suppliers of grain and sunflower oil, markets which were already badly affected by drought and high demand as countries emerged from the pandemic. And although the US is the world’s second biggest wheat exporter after Russia, it will be unable to fill the gap. Germany’s Bayer threatened to suspend crop supply sales to Russia next year unless the country stops its attacks on Ukraine.

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FT deputy editor Patrick Jenkins uses the example of the fall of Lehman Brothers to show the unpredictable impact of sanctions. “Be under no illusion: Russians will not be the only ones to suffer . . . The world should remember Lehman and brace for a global financial and economic shock,” he argues.Need to know: businessThe closure of Apple supplier Foxconn’s plants in Shenzhen is a stark reminder that Covid is not done yet. Many other factories in the tech and manufacturing hub that borders Hong Kong have also been ordered to close as the territory fights the deadliest stage of the pandemic so far. Chinese stocks fell as investors feared widespread lockdowns could be back.Western aircraft leasing companies face a hit to the value of their planes used by Russian airlines after regulators in Bermuda, where most of Russia’s foreign-owned commercial jets are registered, said they would revoke their registrations. Western sanctions ban the leasing of aircraft to Russia and existing contracts must be terminated by the end of March. Accountancy correspondent Michael O’Dwyer looks at the practical problems facing the Big Four firms as they take their leave of Russia. Deloitte, EY, KPMG and PwC, which employ about 15,000 people in the country, are deeply enmeshed in Russia’s economy and count big state-owned entities as clients. Management editor Andrew Hill looks at the challenges for company boards discussing exits.The EU is considering targeting Roman Abramovich in its latest round of sanctions against Russian business people. UK regulators have demanded more information from banks on how oligarchs are shifting their money around the world.The latest sign of consolidation in the “flexible office” sector came today with a £1.5bn merger deal between UK-based landlords The Office Group and Fora, following a deal between Workspace and McKay Securities earlier this month. Investors are betting that offices with good amenities and flexible leasing terms will become more attractive, even if hybrid working patterns mean lower occupancy rates than before the pandemic. Brazil’s large population of 214mn and the pandemic-driven surge in ecommerce offer huge opportunities for tech companies to tap consumer markets. Food delivery company iFood has doubled orders from pre-crisis levels to more than 60mn a month and extended into groceries, logistics and the credit market. The wider region drew in record amounts of venture capital last year.The World of WorkThe new “asynchronised workforce” — with some or all staff working remotely — poses a new challenge for managers who need to maintain their organisation’s culture, help their employees achieve work-life balance, and recreate the serendipitous exchange of ideas that happens in physical settings. Arvind Malhotra, professor of strategy and entrepreneurship at the University of North Carolina, offers some tips.Free food and massages are one thing but managers often overlook a key question in the minds of office workers pondering a return to the office, writes Tim Harford: would I feel like I was the boss of my own desk? An experiment by psychologists found that when workers were empowered to shape their own space, they did more and better work and felt far more content. When workers were deliberately disempowered, their work suffered. After 18 months of Zoom informality, men are now having to deal with a problem women have had for decades, writes columnist Pilita Clark: what to wear to work. One interviewee welcomed the shift towards more casual wear: “It’s so much more focused on bringing your brain. People no longer find a suit a free pass to competence.” The “Great Resignation” is leading many to contemplate new careers via an online MBA. But how do you choose your ideal course — and get a place? Read our new guide to the top institutions and how online courses are reshaping business education.Are you in charge of learning in your organisation? Tell us your views on the most important topics, the best providers and most useful platforms for learning: answer our survey at www.ft.com/closurvey by March 25. Last year’s results are here: what skills employers want.Get the latest worldwide picture with our vaccine trackerAnd finally.From tips on preventing hair loss to the “Mozart of watchmaking” and some rather, erm, interesting, developments on the catwalk: the How to Spend It men’s style issue has you covered.© Kuba Ryniewicz More

Central banks originally emerged from European wars. The credibility these institutions provided allowed sovereigns to fund themselves more cheaply than their rivals, giving them an advantage in funding warfare. That legacy does not make the dilemma facing central banks over how to respond to Russia’s invasion of Ukraine any easier. The European Central Bank, which met last week, and the Federal Reserve and the Bank of England, which will both make monetary policy decisions this week, must decide how to cope with high inflation, the risks of a recession and the spillover effects from the war on the financial system. Even before Russia invaded Ukraine, central banks were set to tighten monetary policy in the face of a “supply shock”. While the ECB was a comparative laggard in its plans to raise rates, policymakers had already conceded the point that restrictions on energy supplies and pandemic-related trade disruptions merited a monetary policy response. Now, with Europe facing even higher inflation, it is no surprise that the balance has tilted even further towards those who put more emphasis on limiting inflation through tighter policy than those who emphasise the benefits of cheap money for supporting economic growth. The Covid-related lockdown of Shenzhen, the Chinese technology hub, will only add to the inflationary woes by putting more pressure on global supply chains that were already dealing with bottlenecks. The initial onset of the pandemic combined a supply-and-demand shock to the world economy, reducing consumer and investment spending as well as the capacity to produce goods and services. Today, the lingering impact of coronavirus is almost entirely on the “supply side”. While rapidly rising prices provide a prima facie case for higher rates, central banks face different challenges. The recovery from the pandemic is more advanced in the US than in Europe, and officials at the Fed can probably be less concerned by the chilling effect of the Russian invasion on consumer and business confidence. There are similarities too, though. Workers in both continents are seeing their pay packets eroded by the combination of higher food and fuel prices, while spending and hiring could retrench even without central bank action. Any victory for monetary policy hawks on both sides of the Atlantic risks being pyrrhic if the economy is not ready. A further complication is the risk of financial spillovers from sanctions on Russia. So far indicators suggest there is no severe stress in dollar funding markets. European stocks, however, have sold off, led by the continent’s banks. A possible default on Russian debt — the country is already considering repaying investors in roubles rather than dollars — could also have unforeseen consequences. Many traders remember the failure of the hedge fund Long-Term Capital Management after the 1998 Russia default.Either way, many countries will face a perfect storm of possible recession, expensive fuel, high debt loads and rising interest rates. Two years ago, ECB head Christine Lagarde said it was not the job of the ECB to close the spread in funding costs between eurozone governments. That provoked a sell-off in Italian government debt and a backlash over the idea that the EU was failing a test of European solidarity. As central banks tighten to try to ensure that the spike in inflation exacerbated by Russia’s invasion of Ukraine is temporary, governments will instead have to spend in order to shield the vulnerable both at home and abroad from the worst effects of the fighting and any associated slowdown in economic growth. There are no good decisions here, only hard ones. More

NEW DELHI (Reuters) – India’s annual retail inflation in February for a second consecutive month exceeded 6%, above the central bank’s tolerance limit, while economists said policy rates were unlikely to rise soon given worries over economic recovery.Consumer prices rose 6.07% in February, boosted by rising costs of food, fuel and household items, compared with 6.01% in the previous month, Ministry of Statistics data showed on Monday.Analysts in a Reuters poll had predicted annual inflation would touch 5.93%, just below the upper limit of the Reserve Bank of India’s 2% to 6% target. Graphic: India’s inflation above central bank’s tolerance level for 2 straight months India’s inflation above central bank’s tolerance level for 2 straight months: https://graphics.reuters.com/INDIA-INFLATION/INDIA/egvbklgkdpq/chart.png Prime Minister Narendra Modi’s government is worried that rising energy and other commodity prices after the Russian invasion of Ukraine last month, coupled with rupee depreciation could stoke inflationary pressures and hit recovery. Food prices, which contribute to nearly half of the consumer price index (CPI), climbed 5.85% year-on-year in February, compared with 5.43% a month before. Economists said that in contrast to the U.S. Fed and some other central banks, the Reserve Bank of India (RBI) was not expected to raise rates soon despite high inflation given the pressure to support economic recovery. Sakshi Gupta, economist at HDFC Bank said the central bank could continue to look beyond high inflation prints — viewing them as a supply side problem — in the near term and lean towards supporting growth.”We do not expect the RBI to change its stance or policy rate at its April meeting.RBI’s monetary policy committee (MPC) will meet from April 6-8 for its next policy review. Economists estimated that the core inflation, excluding volatile fuel and food prices, marginally eased to 5.9% to 5.95% in February from 6% to 6.02% in the previous month. Warning against inflationary pressures, Michael Patra, RBI’s deputy governor said last week that India’s growth story remained as weak as it was during the 2013 ‘taper tantrum’ and geopolitical tensions in Ukraine and Russia were further likely to hurt a recovery.The RBI’s monetary policy committee (MPC) had left the benchmark repo rate unchanged at 4.0% last month, sticking to its accommodative policy stance to help the economy recover from the pandemic. More