Aurelia Butler

Security workers are staging a full-day walkout at airports including Duesseldorf, Cologne/Bonn and Berlin on Monday, and further strikes have been called for Tuesday, among others in Frankfurt and Hamburg.In Duesseldorf, around 160 flights have been cancelled for Monday, which is more than half of the planned 290 departures and arrivals, the airport said in a statement.At Cologne/Bonn, 94 out of 136 flights have been called off, the airport said. Berlin airport’s website also showed many cancelled flights.On Tuesday, no departing passengers will be able to board their flights at Frankfurt airport, Germany’s biggest, only passengers who are in transit, operator Fraport said.Around 770 departures and arrivals were initially scheduled for Tuesday, serving close to 80,000 passengers, according to Fraport.Labour union Verdi demands that employers raise the wages of airport security staff by at least 1 euro an hour for the next 12 months and that staff in different parts of Germany earn the same.BDLS, the association of aviation safety companies, said all of Verdi’s demands amounted to increases of up to 40% and were “utopian”. A next round of wage talks has been scheduled for Wednesday and Thursday, the two parties said. More

(Reuters) – With the Federal Reserve almost certain to hike interest rates this week for the first time in more than three years, investors will be focused on how it plans to curb a surge in inflation inflamed by the Ukraine crisis without triggering a recession.The U.S. central bank is expected at the very least to raise borrowing costs at each of its next three policy meetings as it scrambles to address the fastest inflation in 40 years. Consumer prices rose 7.9% in February on an annual basis. But having waited until it was sure the economy and labor market had recovered from the COVID-19 pandemic, the Fed also risks tightening monetary policy just as growth is slowing. Western sanctions to punish Russia for its invasion of Ukraine have sent the prices of oil and other commodities soaring, adding to uncertainty over the trajectory of the global economy.”The policy path set forward is going to be one for further increases,” said Kim Rupert, managing director of global fixed income analysis at Action Economics, who added that Fed Chair Jerome Powell and his fellow policymakers would likely take a cautious data-dependent approach. “They really can’t do anything else given the uncertainties from the war.”Powell’s news conference after the end of the two-day policy meeting on Wednesday will be closely watched for possible clues as to how aggressive the Fed may be in fighting inflation and whether it will risk a recession to dampen price pressures. Bond markets are already betting on a possible economic contraction down the road, with the two-year, 10-year U.S. Treasury yield curve flattening to only 25 basis points, a much smaller gap than at the beginning of previous Fed tightening cycles. An inversion in this part of the yield curve is seen as a reliable indicator of a recession in one to two years.The Fed’s benchmark overnight interest rate ahead of this week’s policy meeting was 0.08%. Fed fund futures traders are pricing in a policy rate of 1.75% by the end of this year. [FEDWATCH]The Fed will also on Wednesday release updated quarterly economic projections and a “dot plot” showing policymakers’ interest rate projections. Markets expect the Fed to indicate more rate hikes this year and possibly a higher terminal rate, the neutral interest rate seen as consistent with full employment and stable prices.”Our sense is that they are going to want to front-load the policy tightening and probably go at a slower pace in 2023,” said Zachary Griffiths, a macro strategist at Wells Fargo (NYSE:WFC). “It will be interesting to see if any policymakers are starting to revise up their expectations for the terminal rate in response to expectations that inflation will be a fair bit higher perhaps throughout this cycle than what we saw throughout the last economic expansion.”The new economic projections will show if officials see a near-term easing of price pressures and to what extent GDP growth expectations have been lowered.BALANCE SHEET REDUCTIONThe Fed also may indicate how fast and large the cuts to its $8.9 trillion balance sheet will be when the bonds it holds start rolling off the books, which many analysts expect to happen in May or June. The central bank also is widely expected to announce that it has ended the massive bond-buying program initiated in early 2020 to blunt the damage of the pandemic. The asset purchases had dwindled since November 2021.In January, the Fed said it did not anticipate it would sell its holdings of Treasuries, but instead would allow them to mature without being replaced. It may, however, sell its mortgage-backed securities, which could relieve some of the pressure in hot housing markets.Meanwhile, money markets will key in on whether the Fed raises the rate it pays investors to borrow Treasuries overnight in its repurchase agreement facility by 25 basis points, or only 20 basis points, following a five-basis point increase last June that was meant to stop short-term interest rates from falling too low.That could impact demand for the Fed’s reverse repo facility, in which investors borrow Treasuries overnight, and which continues to see near-record daily volumes of around $1.5 trillion, said Padhraic Garvey, regional head of research for the Americas at ING.A smaller rate hike for this facility could “unwind some of this excess cash that goes back into that window on a daily basis,” he said. That said, given it’s the first rate hike, the Fed may want to simplify the messaging by keeping the 25-basis-point hikes consistent across rates and highlight that there are more to come, he noted.The central bank raised counterparty limits in the reverse repo facility twice last year to address excess liquidity amid a dearth of safe, short-term investments. More

Le Maire, who on Tuesday will preside over a meeting with other EU finance ministers in Brussels, said the time had come for a joint “targetted, fast and temporary” economic response to the effects of the Ukraine crisis.The suspension of the EU fiscal rulebook till the end of the year caused by the COVID crisis gave all the flexibility needed to finance emergency support for households and for companies dependent on gas or exposed to the Russian market, he said.”We need to keep fiscal policy reactive,” Le Maire told journalists.He added that sanctions imposed on Russia over its invasion of Ukraine had been effective and would trigger an 8% slump in the Russian economy. More

BRUSSELS (Reuters) – Top European Union diplomats have agreed to add Chelsea football club owner Roman Abramovich to the EU list of Russian billionaires sanctioned after Moscow’s invasion of Ukraine, two diplomatic sources said on Monday.The informal greenlight to Abramovich’s listing came in a meeting on Sunday, one source said, and the EU envoys will reconvene at 1100 GMT on Monday to adopt the measure and a further set of economic sanctions against Russia.Sanctions will be effective only after publication on the EU’s official journal, which usually happens within hours or the day following formal approval.The West has sanctioned Russian billionaires, frozen state assets and cut off much of the Russian corporate sector from the global economy in an attempt to force Russian President Vladimir Putin to change course on Ukraine.In what would be the fourth package of EU sanctions against Russia since its Feb. 24 invasion of Ukraine, the 27-nation bloc will ban the export of luxury goods to Russia, including expensive cars.It will also prohibit the import of Russian steel and iron products, European Commission President Ursula von der Leyen said on Friday.At Sunday’s meeting, diplomats asked the Commission, which drafted the economic sanctions, to explain some aspects of the new economic measures to make sure they cannot be successfully challenged in EU courts, according to two EU sources.No concerns were raised about the new listings of oligarchs and businessmen, which are in a separate legal document drafted by the EU external action service, one diplomat said, noting that Abramovich’s listing “will go through”. Further Russian oligarchs will be added to the EU list. Dozens have already been sanctioned.The new sanctions will hit people active in the Russian steel industry and others who provide financial services, military products and technology to the Russian state, EU foreign policy chief Josep Borrell said on Friday.Abramovich has already being blacklisted by Britain.He holds a Portuguese passport, which means that Portugal could in principle refrain from imposing on him the asset freeze and travel ban decided at EU level, a second EU official told Reuters. More

Nick Mazing is head of research at financial intelligence platform Sentieo. In this post, he explains why the CPI for shelter is set to add to the problems facing Federal Reserve chair Jay Powell.When the Federal Reserve’s monetary policymakers sit down later this week to discuss how to tackle the surge in US inflation, the recent moves in the price of energy will feature prominently. That’s clearly important. The invasion of Ukraine has triggered a fresh surge in shiny rocks, black goo and air you burn. To boot, Americans care more than most what they pay at the pump — it is a nation built around the automobile.But the Fed’s travails don’t begin and end with what’s happening to gas prices. In the coming quarters, officials are set to face price pressures from another essential item for consumers: housing. The housing component of the Consumer Price Index, or CPI, accounts for just over 42 per cent of the weight of goods and services in the “inflation basket” used to calculate the rate of change in prices in the US. That’s a far higher portion than energy. Shelter, specifically, is over 33 per cent of the basket. Breaking it down further, rent of primary residence is 7.862 per cent and owners’ equivalent rent is 24.263 per cent.So what’s happening to housing costs right now? The measures of consumer price inflation that the Fed relies upon are already at multi-decade highs. The reading for shelter currently comes in at 4.7 per cent — much higher than monetary policymakers might like. Yet even that figure underestimates what’s actually happening in the housing market.On the chart below the red line is the year-on-year per cent change in the S&P / Case-Shiller 20-city composite home price index, which measures year-on-year changes in house prices. The blue line is the official CPI inflation figure for shelter.

Quite the discrepancy. Online broker Redfin, meanwhile, reported that median home sale price in February 2022 was up 16 per cent compared with a year ago, while the monthly mortgage payment on the median asking price was up 23 per cent compared with the prior year, and up 36 per cent compared with the same period in 2020. Redfin previously reported that January 2022 was “the most competitive month on record” for homebuyers, with 70 per cent of home offers facing competition. This underestimation of shelter inflation also holds for rents. We’ve been looking closely at the rental rates reported by publicly traded residential REITs. They are also seeing mid-teen increases, year-on-year, based on their reporting for the fourth quarter of last year.Here are some examples from big players in the market. Mid-America Apartment Communities, with ownership interest in over 100,000 units across 16 states, reported a 16 per cent increase year-on-year on a “blended” — that is, new leases and renewals — basis. Essex Property Trust, with ownership interest in over 60,000 units, reported a 13.9 per cent “blended” rate rise. Camden Property Trust, with ownership interest in over 58,000 units, reported a 15.7 per cent “blended” rise. Invitation Homes, which focuses on single family home rentals and has ownership interest in over 82,000 homes, reported a “blended” rise of 11.1 per cent. Similarly, Redfin’s latest rental data release showed a 15.2 per cent year-on-year increase for January 2022, with the Top 10 out of their Top 50 metro areas recording annual increases between 31 per cent and 39 per cent.So what explains the discrepancy? Let’s look at the methodology behind the CPI calculation.As touched upon earlier, to measure shelter the Bureau of Labor Statistics uses two distinct indices: the OER (owners’ equivalent rent of primary residence) and Rent (the rent a lessee pays on their residence). The data for each index is collected from six samples of housing units. But each sample group is only surveyed once every six months. The rationale is that rents change less frequently than other goods and services in the CPI. However, in times of faster price increases, these data points are, in effect, “old news,” and not as reflective of the real market as what we can observe in the reports of the housing REITs.What adds to the complexity of this specific index component is that housing is a widely-owned asset: over 65 per cent of US households own their home, and about 60 per cent of owner households have a mortgage, with the balance owning their houses outright. The BLS itself views houses as capital goods rather than consumption items which is why house price changes are not directly reflected in the index.The official numbers are yet to reflect the reality of double-digit housing inflation for aspiring homeowners or people who rent. But we suspect that the large shelter component of the CPI will rise in the coming quarters. Even if other parts of the CPI ease, this will keep the pressure on the Federal Reserve to carry on raising rates. A 25 basis point rise this week looks a certainty, with further hikes later this year a sound bet too. The only “good” news for Powell and co is that they have the tools to cool the housing market. While the US has a chronic lack of housing supply, tighter credit conditions should help. Even if it doesn’t completely solve the problems facing aspiring homeowners and renters, the Fed has far more control over conditions in the market for mortgage credit and, indirectly, rents than it does over oil prices. More

The countries of central and eastern Europe have shown moral clarity in the face of crisis. As millions of people flee the war in Ukraine, Poland and others have thrown open their borders to offer refuge. A sense of solidarity between former Soviet-bloc states seeking to create new paths for themselves in Europe has driven much of this response. These countries are bearing the cost of a broad European imperative to offer support to those who need it the most. In return, the rest of Europe needs to come to the aid of these countries in a moment of economic turmoil. The proximity of central and eastern Europe to the conflict has spooked investors and prompted significant pressure on national currencies. Action is required now to help prevent this volatility from mutating into something altogether more serious. Central and eastern European central banks have certainly not been complacent in their response. Foreign exchange interventions have been paired with interest rate rises to help support national currencies. While this combination has brought momentary calm, more can be done to stave off further volatility. Investors’ lingering doubts about how well these economies will cope with the strain of a protracted conflict could result in sustained pressure on their currencies as they bet on depreciation or take fright.In the face of this pressure, central banks will have no choice but to take further action. This carries significant risk. If central banks are unsuccessful in their attempts to support currency values through higher interest rates, then inflation may continue to rise, threatening a “stagflationary moment” of low growth and high prices. Any broader slowdown in Europe provoked by high gas prices, especially in Germany — the dominant export partner of many central and European countries — would pose additional threats.On top of this comes the risk of a private debt squeeze. The situation is particularly precarious for countries that have relatively high amounts of private debt denominated in foreign currencies. If exchange rates continue to fall, payments on this external debt will become more expensive.The first task will be to expand the swap lines between the European Central Bank and non-euro central banks. Swap lines can provide a pipeline of euros into central and eastern Europe to service foreign-denominated debt, if needed. Their very existence should send a powerful signal to investors that there is no need to panic, with the ECB ready to intervene in a crisis. This alone should be enough to stave off further precipitous currency falls that could make swap lines necessary in the first place.Investors contemplating an exit from central and eastern Europe should meanwhile think twice. The EU has already demonstrated a surprising willingness to take bold steps during this crisis and its commitment to its eastern European members should not be doubted. If nothing else, self-interest should motivate caution: those with positions in the region have more to gain from improving the resilience of these economies rather than abandoning them. Reactivating the Vienna Initiative, originally created in 2009 to help prevent capital flight by western-owned banks, is the kind of effort that can help.European nations on the front line of the Ukrainian crisis undoubtedly find themselves in the midst of their own economic storm. Unusual political cohesion has been shown among the nations of Europe in recent times. Now is the moment to commit to economic solidarity too. More

Antibacterial wipes, sports bras and a less formal alternative to men’s suits will contribute to the UK’s official measure of inflation for the first time, reflecting changes ushered in by the pandemic ahead of a cost of living crisis. In its annual update, the Office for National Statistics on Monday added 19 products to the more than 700 items in its virtual “shopping basket” used to calculate inflation, and removed 15.In recognition of more time for exercise and hobbies, it also added craft kits and pet accessories. The rise of homeworking, and the closure of department stores that stocked full three-piece suits, meant formal menswear was replaced by a jacket or blazer.The changes are part of wide-ranging shifts in how the ONS measures price changes as the UK grapples with a cost of living crisis that the Bank of England expects to drive inflation to about 7 per cent by April. It will also increase the number of prices it collects by taking information direct from tills, and offer more personalised breakdowns of inflation’s effects.Sam Beckett, the ONS’s head of economics, said the announcement was part of a “long-term transformation” to keep the measurement of UK inflation “as accurate and relevant as possible”. Prices for consumer goods in the UK increased 5.5 per cent year on year in January. However, this headline figure conceals potentially bigger jumps in the prices of particular goods — a problem the ONS pledged to recognise earlier this year after food writer Jack Monroe drew attention to soaring prices of budget food products.It confirmed on Monday it would introduce a personal inflation calculator, which individuals can use to see the impact of inflation on their own spending, in recognition of prices rising unevenly between different products and groups. Jack Leslie, senior economist at the Resolution Foundation think-tank, said inflation looked to be the “defining economic feature of 2022”. He said the personalised calculator would help families and policymakers better understand how different groups were affected by price pressures. “While inflation is currently broad-based, our own research suggests it could be higher for low-income households by the autumn if food price inflation grows,” he said. Alfie Stirling, director of research at the New Economics Foundation, warned that while the changes were welcome they risked being “overtaken by real-life events”. NEF research released on Monday found that 34 per cent of people in the UK would fall short of being able to afford a “socially acceptable” standard of living by April, with the average annual shortfall being £8,600. A separate report by the Resolution Foundation found disproportionate increases in food and energy costs could mean inflation in the poorest households could exceed 10 per cent by October, because these families spend a greater proportion of their incomes on food and heating.

Stirling called for a package of reforms ensuring means-tested benefits rose in line with inflation to ensure the incomes of the poorest people kept up with prices. Other items added to the ONS inflation basket included meat-free sausages and canned pulses, reflecting the growth of vegetarianism and veganism. Coal, which will be banned for home use next year as part of government efforts to combat climate change, was one of the products removed from the basket, along with a single doughnut, which was discarded because homeworking has forced a shift away from purchasing individual baked goods. More

The writer is chief market strategist for Europe, Middle East and Africa at JPMorgan Asset ManagementAre we headed back to the economic chaos of the 1970s? With soaring commodity prices and the prospect of very high, if not double-digit inflation, you can see why investors are nervous.Economists, including those at central banks, have been offering reassurance. Testifying to the UK Treasury select committee in November last year, the governor of the Bank of England Andrew Bailey said: “We are a very long way away from the 1970s.”The economic community points to two structural changes that have happened in the UK economy. The first is the de-unionisation of the labour market. Back in the 1970s, when headline inflation spiked, unions pushed for higher pay under the threat of strike action. The increase in inflation due to oil prices fed quickly into higher wages. Companies’ costs rose further, forcing them to raise prices yet again.At that time, the government set interest rates but, unsurprisingly, was very reluctant to tighten policy amid rampant inflation and widespread public discontent. Very large rises in interest rates, and very deep recessions, were required to break the wage-price spiral.The second structural change relates to central bank independence and clear legislated inflation targets, which should prevent a wage-price spiral taking off. Workers, it is said, will know that if they start asking for higher pay, inflation will rise further and then so will interest rates and mortgage payments. So companies won’t raise prices, and workers won’t ask for more pay. And, if they do, the BoE will act.While I appreciate the theory, I can’t help wondering how this will work in practice.Let’s take the labour market. In the late 1970s, about 50 per cent of UK workers were in a union. That number is now 24 per cent. The largest union is Unison, which covers the NHS. Is it really tenable for the chancellor to provide 3 per cent pay growth for the health service this year now we are staring at 8-10 per cent inflation?I also think that workers not in unions will prove just as pushy in asking for higher pay. This labour market is incredibly tight. Vacancies are at a record high. If workers, not in unions, feel confident that there isn’t a potential candidate ready and willing to replace them, they will ask for more money. We are already seeing this. In January, inflation was 5.5 per cent while pay growth was 6.3 per cent year on year.In November, the BoE’s Monetary Policy Committee stated: “Talk of a wage-price spiral is just completely wrong.” I’m not so sure. But surely we can rely on the second structural change — the independence of the BoE? It will step in early and decisively to cool the economy and prevent inflation becoming embedded.I don’t doubt the institution’s integrity but I also don’t envy the task ahead for the MPC. Just look, for example, at the criticism the governor recently experienced after explaining his hope for modest pay growth to prevent inflation taking over. Raising mortgage rates, alongside soaring utility bills, will not make the committee popular. The BoE will also be aware of how dependent the chancellor’s finances are on its decision. The vast quantity of government bonds the bank bought during the pandemic leaves the Treasury’s cash flows very sensitive to changes in the base rate. The BoE rebates profits from the gap between the coupon payments received on these bonds and what interest rate it pays to commercial banks that hold money at the central bank. As the benchmark rate rises, that profit rebate shrinks. Given Rishi Sunak will also be under pressure to spend more and support household incomes in the face of rising inflation, this would add to his worries. To be clear, it is not my base case that we are headed back to the 1970s. By my calculations, which are changing rapidly given commodity price moves, inflation may rise above 9 per cent and be persistent at that level for much of the year, before slowly falling towards 3 per cent through 2023.But, unlike some, neither am I dismissing a much more adverse scenario. We should remember that in the decade before the 1970s it also looked as if inflation was structurally under control, roughly steady at 2.5 per cent. This led to complacency in economics and policymaking, which arguably sowed the seeds for the economic chaos of the 1970s. As investors, the clearest implication is that we face years of deeply negative real interest rates. And while government bonds may have cushioned portfolios in light of the current the risk-off environment, we should question their role as an all-weather “riskless” asset. More