Aurelia Butler

WASHINGTON (Reuters) -The International Monetary Fund on Saturday said it expected to bring Ukraine’s request for $1.4 billion in emergency financing to its board for approval as early as next week and was in talks about funding options with authorities in neighboring Moldova.In a statement, the global lender said the war in Ukraine was already driving energy and grain prices higher, and had sent a wave of more than 1 million refugees to neighboring countries, while triggering unprecedented sanctions on Russia.”While the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious,” the IMF said in a statement after a board meeting chaired by Managing Director Kristalina Georgieva.”The ongoing war and associated sanctions will also have a severe impact on the global economy,” it warned, noting that the crisis was creating an adverse shock to inflation and economic activity at a time when price pressures were already high.It said price shocks would be felt worldwide, and authorities should provide fiscal support for poor households for whom food and fuel made up a higher proportion of expenses, adding that the economic damage would increase if the war escalated.Sweeping sanctions imposed on Russia by the United States, European countries and others would also have “a substantial impact on the global economy and financial markets, with significant spillovers to other countries.”IMPACT ON UKRAINE, MOLDOVAIn addition to the human toll, Ukraine was experiencing substantial economic damage, with sea ports and airports closed and damaged, and many roads and bridges damaged or destroyed.”While it is very difficult to assess financing needs precisely at this stage, it is already clear that Ukraine will face significant recovery and reconstruction costs,” it said.The board was expected to consider Ukraine’s request for $1.4 billion in emergency financing as early as next week. Ukraine also has $2.2 billion available through June under an existing stand-by arrangement, the IMF said last week.Moldova and other countries with close economic ties to Ukraine and Russia were at “particular risk” of scarcity and supply disruptions, the IMF said.It said IMF staff were actively discussing funding options with Moldova, which has requested an augmentation and rephasing of its existing $558 million IMF loan program to help meet the costs of the current crisis. More

ROME (Reuters) -Italian police have seized villas and yachts worth 143 million euros ($156 million) from five high-profile Russians who were placed on sanctions lists following Moscow’s attack on Ukraine, the government said on Saturday.The luxury properties were sequestered in some of Italy’s most prestigious retail estate locations – the island of Sardinia, by Lake Como and in Tuscany – while two superyachts were grabbed at their moorings in northern ports.The police operations were part of a coordinated drive by Western states to penalise wealthy Russians and try to force President Vladimir Putin to withdraw his troops from Ukraine.A list issued by Prime Minister Mario Draghi’s office showed the most valuable asset now in police hands is a 65 metre (215 ft) yacht, the “Lady M”, which has a price tag of 65 million euros and belonged to Russia’s richest man, Alexey Mordashov.It was impounded in the port of Imperia.A second luxury vessel, the Lena, was seized in the nearby port of Sanremo. It was worth some 50 million euros and was owned by Gennady Timchenko, whom Putin has described as one of his closet associates.Billionaire businessman Alisher Usmanov had a villa worth 17 million euros seized on the Mediterranean island of Sardinia, while Oleg Savchenko, a member of the Russian parliament, had his 17th century house near the Tuscan city of Lucca, worth some 3 million euros, taken from him.An undisclosed number of properties valued at 8 million euros were confiscated in Como from state TV host Vladimir Soloviev, who reportedly complained https://tinyurl.com/2p8994kf on Russian television when he found out last month he risked losing his Italian villas. “But you told us that Europe has sacred property rights,” he was quoted saying by The Daily Beast.Russian oligarchs have bought numerous villas in choice Italian settings over the past 20 years and sources have said more assets are expected to be seized in coming days. Uzbekistan-born metals and telecoms tycoon Usmanov is well known in Italy for owning multiple properties on Sardinia, while Italian media say Mordashov owned a villa worth some 66 million euros ($72 million) on the same island.Taking into account the assets of his whole family, Forbes magazine estimates that Mordashov had an estimated net worth of $29.1 billion before sanctions hit.Mirko Idili, a coordinator of the CISL union in Sardinia, has warned that the sanctions and a reduced presence of rich Russians this summer could negatively affect the island’s economy and put more than 1,000 jobs at risk.Italian banks were instructed by the Bank of Italy’s financial intelligence division on Friday to urgently let it know of all measures taken to freeze the assets of people and entities placed on the EU list.($1 = 0.9152 euros) More

Below are six charts showing the recent dramatic market moves:EURO IN THE DOLDRUMSThe euro fell below $1.10 on Friday for the first time in almost two years, having shed over 3% against the dollar this week for its biggest weekly fall since March 2020.The single currency was nursing even bigger losses against the Swiss franc. It is down almost 4% over the week in its biggest such fall since January 2015, when Switzerland abandoned the franc’s three-year-old cap against the euro.Worries that Russia’s invasion of Ukraine will deal the economy a fresh blow, especially as energy prices soar, explain why the currency is one of the week’s biggest losers. Graphic: The euro takes a beating, https://fingfx.thomsonreuters.com/gfx/mkt/akvezxnlepr/euroforkarin.PNG GRAINS & METALS Prices of raw materials from wheat to various metals have soared to multi-year highs as Western sanctions have disrupted air and sea shipments of commodities produced and exported by Russia.Russia and Ukraine are two of the world’s biggest exporters of wheat, which scaled a 14-year peak on Friday, having gained nearly 40% since Russia invaded Ukraine on Feb. 24.Russia is also a supplier of metals. Aluminium hit a record high on Friday while copper, where the country supplies 3.5% of world supplies, was also flirting with a fresh all-time peak.Graphic: Grains and metals, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwaakxvo/Wheat%20and%20commodity%20prices.PNG ENERGY & GAS Brent crude prices rose another 21% over the week, closing at their highest since 2013, with buyers and shippers increasingly shunning Russian oil supplies which total up to five million barrels per day (bpd).Neither the possibility of a million bpd of Iranian crude coming on tap in case of a revived nuclear deal with the West nor developed countries’ deal for a coordinated release of 60 million barrels made a dent.European gas prices notched an astonishing 120% weekly gain, to hit 208 euros per megawatt hour — a record high. Graphic: Brent crude and European gas prices, https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnzzgjvq/Brent%20crude%20and%20European%20gas%20prices.PNG EUROPEAN BANKS PUNISHED European banks had another gruelling week, hit by a triple whammy of Western sanctions on Russia, a scaling back of rate hike expectations and a worsening macroeconomic environment. The moves reverse all the gains made earlier this year when it appeared that economic recovery would allow central banks to raise interest rates, benefiting banks. A European banking stocks index fell around 16%, its worst week since March 2020, bringing year-to-date losses to 20%. Shares in Russia-exposed lenders such as Austria’s Raiffeisen and France’s SocGen fell around a third over the week. Graphic: European banking stocks down over 16% this week, https://fingfx.thomsonreuters.com/gfx/mkt/gdvzybngwpw/banks%20for%20karin.PNG LOVING BUNDS Turmoil in European markets, heightened uncertainty over the economic outlook and a scaling back of rate-hike bets meant investors were keen to snap up safe-haven bonds.In Germany — the euro area’s benchmark bond issuer — 10-year bond yields fell 30 bps this week in their biggest one-week fall since the euro debt crisis in 2011.At -0.08%, German Bund yields are back in negative yield territory. In other words, investors are willing to pay Germany’s government to hold its bonds in an uncertain environment. That was not the case a week ago, when Bund yields stood at 0.22%. Graphic: Bund yields below zero, https://fingfx.thomsonreuters.com/gfx/mkt/zgpomzjqrpd/Bund%20yields%20back%20below%20zero.PNG ROUBLE DISCONNECT Russia’s rouble has tumbled more than 30% in offshore trade – its worst week on record – and around 20% in Moscow trade. Bid-ask spread are very wide – a sign of evaporating liquidity.The divergence between onshore and offshore trade illustrates just how disconnected Russia has become from global financial markets after severe sanctions and countermeasures. Graphic: Russia rouble disconnect, https://fingfx.thomsonreuters.com/gfx/mkt/klvykbbgjvg/Russia%20rouble%20onshore%20and%20offshore.PNG More

Russians are bracing for an uncertain future of spiraling inflation, economic hardship and an even sharper squeeze on imported goods. The rouble has lost a third of its value this week after unprecedented Western sanctions were imposed to punish Russia for invading Ukraine. The moves froze much of the central bank’s $640 billion in reserves and barred several banks from global payments system SWIFT, leaving the rouble in free-fall.(Graphic: Russia’s currency reserves have surged more that 75% since 2015, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwxzkxvo/Pasted%20image%201644935695631.png) Cities across Russia were outwardly calm, with little sign of the crisis devastating financial sector and markets. Except for the lines of people looking to stock up on products – mostly high-end items and hardware – before shelves empty or prices climb further.”The purchases that I planned to make in April, I urgently bought today. A friend from Voronezh also told me to buy for her,” shopper Viktoriya Voloshina told Reuters in Rostov, a town 217 kilometers (135 miles) from Moscow. Voloshina said she was looking for office shelves and tables and also shopping on behalf of a friend from another town. “My heart is breaking,” she added.Dmitry, another Moscow resident, lamented rapid price rises.”The watch I wanted to buy now costs around 100,000 rubles, compared to 40,000 around a week ago,” he said, declining to give his surname.But the spending burst visible this week may peter out.While there is no palpable sign of panic, the wipe-out of rouble savings and the doubling of interest rates to 20% will squeeze mortgage holders and consumers. Financial conditions — reflecting availability of credit in the economy — have tightened brutally this year, which Oxford Economics predicted would shrink domestic demand by 11% by year end and raise unemployment by 1.9 percentage points in 2023. Zach Witlin, an analyst at Eurasia Group, notes sanctions are already hitting consumers via prices hikes and digital payments disruptions. While consumers are not directly targeted, “fear and caution are exaggerating the impact,” with the exit of foreign brands such as IKEA creating a “snowball effect,” he added.(Graphic: Russian financial conditions have tightened, https://graphics.reuters.com/GLOBAL-MARKETS/RUSSIA/dwpkrlknrvm/chart_eikon.jpg) IMPORTS TO ISOLATIONCars, machinery and car parts comprised nearly half of Russia’s $293 billion imports last year, according to the Federal Customs Service.The government’s strenuous import cutbacks in recent years mean 2021 imports remained 7% below 2013 levels, before the first sanctions following Russia’s 2014 annexation of Crimea.(Graphic: Russian imports and exports, https://fingfx.thomsonreuters.com/gfx/mkt/byvrjexzqve/Pasted%20image%201646418036290.png) It has also beefed up trade with China, which is the only country to boost exports to Russia since 2014. (Graphic: China’s trade with Russia, https://graphics.reuters.com/UKRAINE-CRISIS/xmvjoerqapr/chart.png) But further declines look inevitable as the rouble plunges, insurers refuse cover to businesses exporting to Russia and shippers back away from Russian ports whether to export or to import.While only a few Russian companies are targeted by sanctions “all of them will feel the chilling effect,” said Matt Townsend, sanctions partner at law firm Allen & Overy. “This is why sanctions are a very effective measure to isolate a country.”The immediate economic shock will cause a 35% GDP contraction in the second quarter and a 7% decline in 2022, JPMorgan (NYSE:JPM) predicted. But “growing political and economic isolation will curtail Russia’s growth potential in years to come,” it added.That may come about if restrictions “limit the acquisition of technology needed to support Russia’s highest value industries,” RBC Global Asset Management warned. The Biden administration is preparing rules to curb Moscow’s ability to import smartphones, aircraft parts and auto components. But multinationals, from tech firms Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) to consumer goods producers Nike (NYSE:NKE) and Diageo (LON:DGE), have severed links with Russia, meaning shoppers will have limited access to the consumer goods they have grown accustomed to over three decades.Chinese companies, so far staying put, could grab some market share but they too could fall prey to secondary sanctions as many of their products such as smartphones use U.S. origin technology.Some Russians are not staying to find out. Lidia, a freelance worker from Rostov said the money transfer curbs were complicating receiving payments from abroad.”The sanctions have hit me very hard. Prices are already up around 20%…It’s a fact that you already can’t buy some medicines. Things will get worse,” she said. “Today my family and I are leaving Russia.”  More

Investors retreated from European stocks funds this week, as Russia’s invasion of Ukraine threatens to crush growth in the region and pump up inflation.Net outflows from European equities hit $6.7bn in the week to March 2, the highest in five years, EPFR data collated by Bank of America show. “EU stagflation looks highly likely,” BofA’s chief investment strategist Michael Hartnett said in a note on Friday, referring to the combination of weak economic growth and high inflation that he expects to follow the outbreak of war between Russia and Ukraine. “Prolonged conflict means weaker growth, higher uncertainty and lower asset prices,” the bank said in a separate note. Europe’s Stoxx 600 index fell 7 per cent this week, while Germany’s Dax and France’s Cac 40 dropped 10 per cent.The US bank’s forecast comes as Russia’s invasion of neighbouring Ukraine enters its second week, with cities including Kyiv and Kharkiv under heavy fire and the civilian death toll mounting. Russia accounts for roughly 10 per cent of global oil production and supplies 40 per cent of the EU’s gas, meaning any future sanctions placed on the country’s largest fossil fuel groups could further inflate prices, which have already soared to record highs. A weaker euro accentuates that rise in prices still further.Prices for coal, aluminium and wheat, all of which are exported in vast quantities by Russia, have also soared in recent weeks. Rising prices, along with western sanctions on Moscow and the rising risk of “financial market accidents”, now threatened a global recession, Hartnett said. The US economy, despite being less exposed to the conflict than European markets, nonetheless remained vulnerable, Hartnett added, noting that Wall Street’s S&P 500 index fell 40 per cent from its peak in the months following the oil price shock induced by the Yom Kippur war of 1973. BofA’s sombre analysis stood in stark contrast to the outlook proffered by analysts at UBS, who on Friday said in a note that because global growth remained above trend, a recession was unlikely even if oil prices were to rise to $125 per barrel and stay at such levels for two quarters. The analysts acknowledged, however, that commodity markets were “ill prepared” to handle additional supply disruptions stemming from the conflict in Ukraine. More

Another exceptionally strong US jobs report has kept the Federal Reserve on track to deliver a series of interest rate increases this year even as moderating wage growth mitigates the immediate need for aggressive tightening, according to economists. Hiring accelerated more than expected in February as the world’s largest economy added 678,000 jobs, the most since July, pulling the unemployment rate down to 3.8 per cent. A bigger surprise was the lack of wage growth. Average hourly earnings flatlined last month, following a 0.6 per cent jump in January, but were up 5.1 per cent over the past 12 months.And the job gains were widespread with strong increases in leisure and hospitality, healthcare, professional and business services, retail and construction. “This is the Goldilocks employment report for the Fed and for the economy, because now we have a situation where growth is stronger than expected, and [wage] inflation is better than expected,” said Torsten Slok, chief economist at Apollo Global Management. He added: “It definitely takes some of the pressure off the Fed in terms of rate hikes.”“The wage data we got is good news for the Fed, but that doesn’t negate the fact that we should still be closer to neutral,” said Tiffany Wilding, US economist at Pimco, referring to the level of policy rates that neither supports nor constrains economic activity. The increase in the labour force participation rate to 62.3 per cent, the highest since March 2020, was also welcomed by economists given that labour supply growth has lagged demand for much of the pandemic. US president Joe Biden seized on the report to tout the labour market recovery during his presidency. “Since I took office, the economy has created 7.4mn jobs. That’s 7.4mn jobs providing families with dignity and a little more breathing room. We are building a better America,” he said.The combination of strong hiring, easing wage pressures and improving participation is exactly the kind of jobs report people should hope to see in the months ahead, said Eric Winograd, senior economist for fixed income at AllianceBernstein.“The strength of the labour market is attracting people back in,” he said. “If you think about what is bringing in people off the sidelines, it is wage gains and improved public health.”US businesses have offered heftier wages and improved benefits to attract workers in a labour market with 10.9mn vacant positions. Along with near-record turnover, that has helped create an “overheated” labour market that does not need the emergency support measures put in place at the start of the pandemic, according to Jay Powell, Fed chair. Powell said this week in testimony to US lawmakers that he supports a quarter-point interest rate increase this month as the first step in a “series” of adjustments in 2022, with the Fed potentially considering raising rates by larger increments at one or more meetings if inflation remains elevated.He said labour market strength alongside very elevated inflation justifies the US central bank proceeding with its plan to raise rates this month, despite the prospects of slower growth stemming from Russia’s invasion of Ukraine. “Commodity prices have moved up significantly, energy prices in particular. That’s going to work its way through our US economy,” Powell told members of the Senate banking committee on Thursday. “We’re going to see upward pressure on inflation, at least for awhile. We don’t know how long that will be sustained for.”

Markets are pricing in at least five interest rate increases this year, down from six before Russia’s invasion of Ukraine.Shorter-dated US Treasury yields, which move with interest rate expectations, fell slightly on Friday following the jobs report, as traders bet that stalled wages would keep the Fed on track for a quarter-point increase in rates later this month. Vincent Reinhart, who worked at the US central bank for more than 20 years, expects the Fed to proceed “gradually” this year in light of geopolitical uncertainties and the dovish composition of the its monetary policy setting committee. He also worries that will amount to a policy error.“They’re not going to be able to tighten enough in 2022,” he predicted. “They’ll have to go a bit more in 2023 and inflation is going to be well above their goal this year and next.” More

BEIJING (Reuters) -China on Saturday targeted slower economic growth of around 5.5% this year as headwinds including an uncertain global recovery and a downturn in the country’s vast property sector cast a pall on the world’s second-largest economy. As economic conditions soften, the central bank has started cutting interest rates, local governments have expedited infrastructure spending and the finance ministry has pledged more tax cuts. There were few surprises in Premier Li Keqiang’s annual work report to the annual session of parliament, as China puts a premium on stability in a politically sensitive year during which President Xi Jinping is expected to secure a precedent-breaking third leadership term in the autumn.”We must make economic stability our top priority,” Li told delegates gathered at the cavernous Great Hall of the People on the west side of Tiananmen Square.Amid coronavirus curbs, this year’s parliamentary meeting will be the shortest ever at 6-1/2 days. “The world economic recovery lacks drive, and commodity prices remain high and are prone to fluctuation. All of this is making our external environment increasingly volatile, grave and uncertain,” Li said. While the government vowed to ensure supply of key agricultural products including grains, the agriculture minister said on the sidelines of parliament China’s current wheat crop-growing condition could be the worst in history.Li said that maintaining steady export growth is getting harder, and supply of energy and raw materials remains inadequate.Also weighing on the economy is a property downturn triggered by a government campaign to control borrowing among highly indebted developers. An ensuing tightening in liquidity squeezed the sector and chilled buyer sentiment. Still, China left its consumer price index target unchanged at around 3%.Last year, China’s gross domestic product grew 8.1%, beating the government’s target of over 6%, helped by robust exports to economies hit by COVID-19 and a low statistical base in 2020, when the pandemic began to spread worldwide. Some analysts said this year’s goal is tougher to reach.”It may be a bit difficult to achieve the target, and we need to take some measures to achieve it,” said Zong Liang, chief researcher at Bank of China.’OVERSEAS RISKS’While investing abroad under China’s Belt and Road initiative, China must guard against “overseas risks”, Li said, in contrast to his push last year for outbound investment and cooperation.He did not mention the war in Ukraine, in which China has refused to condemn Russia’s attack or call it an invasion. As usual, Li’s report was primarily focused on economic issues.Apart from the pandemic, implications from the Russia-Ukraine conflict for supply chains and price volatility also cloud China’s near-term outlook. Zhiwei Zhang, chief economist at Pinpoint Asset Management, said Li’s caution reflects potential geopolitical risks. “The Ukraine crisis and the sanctions imposed by many countries on Russia have made such risks clear,” he said.China faces defence challenges on several fronts, from Chinese-claimed Taiwan to U.S. naval and air missions in the disputed South China Sea, and a separate budget report on Saturday said defence spending will rise 7.1% this year, more than last year’s increase.China remains committed to the Communist Party’s policy of “resolving the Taiwan question in the new era”, Li said. JOB TARGETSGuo Tianyong, an influential economist at the Central University of Finance and Economics in Beijing, told Reuters that hitting 5% growth is crucial. “If growth is lower than 5%, it could affect job creation,” he said. The government set a target to create at least 11 million urban jobs, unchanged from last year’s goal.China targeted a budget deficit around 2.8% of gross domestic product, narrowing from last year’s goal of around 3.2%, while the quota for local government special bond issuance was set at 3.65 trillion yuan ($578 billion), flat from last year. The budget deficit ratio was lowered to boost fiscal sustainability, Finance Minister Liu Kun said on the sidelines of parliament. [L2N2V805Z]($1 = 6.3188 Chinese yuan renminbi) More

Investing.com — Federal Reserve chairman Jerome Powell confirmed plans this week to back a 25-basis point rate increase at the March meeting, but a quarter-point hike risks the Fed falling even further behind in its efforts to curb inflation.“A 25 basis points rate hike at the March meeting would be a no decision as opposed to a decision … and it’s not going pull the handbrake on the inflation momentum that arguably is being further fueled [by the Russia-Ukraine conflict], Johan Grahn, head of ETF Strategy at Allianz told Investing.com in an interview on Monday, ahead of Fed chairman Jerome Powell’s remarks earlier this week.In testimony before Congress, Powell said he would support a 25-basis point, or 0.25%, rate hike in March, though added that he was “prepared to raise by more than that in a meeting or meetings” if inflation doesn’t subside later this year as expected.Powell also flagged the “highly uncertain” impact to the economic outlook from the fallout of the Russia-Ukraine conflict.But while uncertainty appears to be the only certainty concerning the outcome of the Ukraine crisis, the Fed still has a job to do. That job, the dual mandate job, is to maximize employment and ensure stable prices.In 2020, the Fed tweaked the framework it used to react to changes in inflation and labor market trends.Under this new framework, “employment is an important driver of policy decisions when there’s excess slack in the labor market, but it drops out completely once the unemployment rate dips below 4%…,” Jefferies said in a report earlier this year.With the unemployment rate running below 4%, the Fed’s dual mandate has arguably become a one-dual mandate to curb the pace of inflation now running at a 40-year high of 7.5%.Fresh inflation data due next week ahead of the Fed’s March 15-16 meeting, is expected to show that inflation rose to nearly 8% last month, and is likely to remain elevated as “Russia’s invasion of Ukraine has caused significant swings in commodity prices, which will no doubt exert upward pressure on inflation in the coming months,” according to Jefferies.Earlier this week, Powell confirmed what the market has known for a while: the Fed is well behind the curve on inflation, and it’s pretty much an inside job as the central bank was too slow to react to signs of elevated price pressures.   “We would have engaged our tools earlier,” Powell said earlier this week after conceded that the central bank’s expectations for supply-side problems to dissipate at a faster pace failed to materialize. In the wake of the Ukraine crisis that threatens global growth and is set to ramp up the pace of inflation, the Fed unfortunately finds itself between a rock and hard a place.Hike rates too aggressively slowing an economy that is already expected to decelerate amid red-hot inflation, increases the risk of stagflation ahead. But hike cautiously, and there’s little room for flexibility to save the economy in the event of a significant slowdown.  “If you don’t have a way to treat the patient down the road … this could be in two, three, or maybe five years, it becomes really dangerous, and now we’re talking about a much longer secular type of [stagflation] problem.“In my view, it’s so critical that the Fed stay on point as we are off an already delayed rate hike cycle,” Grahn added. More