Aurelia Butler

SINGAPORE (Reuters) – Investors are reviving one of the most unprofitable wagers of the past two decades and betting that a combination of politics and price pressures would prompt the unthinkable: a hawkish shift at the Bank of Japan, perhaps as soon as the summertime.The modern pioneer of quantitative easing has given no such hint. But rising inflation, an election on the horizon and a falling yen, which is driving up the cost of living, have roused a bond market dulled by years of intervention.Yields have leapt to their highest since the BOJ began its policy of targeting interest rates in 2016, as traders figure that something has got to give, and there is mounting pressure on both sides of the central bank’s targeted 10-year tenor. “It’s a binary outcome so interest in this trade from the macro community, particularly the offshore accounts, has grown since the end of last year,” said David Beale, head of institutional client coverage in Asia at Deutsche Bank (DE:DBKGn).He said bets were being laid on volatility in rates and on Japan’s yield curve steepening as longer-dated yields go up. Investors see a chance that the central bank lifts its target yield, or shifts it down the curve to the five-year tenor.Price moves have opened the gap between 10-year and 30-year yields to its widest in more than three years this month, while at the shorter end five-year bonds suffered their longest selling streak since 2008. [JP/]The currency is also in focus as investors see it as a pressure point for the BOJ and are positioning for it to slide at first, while using options to wager that things get bumpy later.”Vol is starting to move in dollar/yen for the first time in quite some time,” Beale said, referring to volatility gauges that have ticked steadily higher since September.Equity investors are also preparing their portfolios for the possibility of currency moves.Kartik Ramachandran, managing partner of Corestrat, a London-based private wealth manager, is bullish on Japanese stocks, but has now started looking for firms that benefit from a weaker yen and has one eye on the policy risks.”We think the risks are balanced. Now, if the balance of risk shifts up, driven by the higher commodity prices and a weaker yen, combined with the slow and low wage growth, the BOJ will act,” he said.WIDOWMAKEREmboldened by the abrupt abandonment of yield curve control in Australia, bond traders think the next few months are crucial because inflationary pressure and an upper-house election due by July are possible triggers for a policy shift.Wholesale inflation is running near four-decade highs and heading for consumers. Economists expect headline inflation to leap in April, when last year’s one-off falls in mobile phone bills start rolling out of the reporting period.Rising yields globally also mean that anchored rates in Japan are weighing on the yen, and as that feeds further into energy prices and living costs it is likely to increase pressure on policymakers and politicians to do something about it.”The situation is completely different from the past 20 or 30 years, so that’s why people have started thinking that this time could be different,” said Tohru Sasaki, head of Japan Markets Research at J.P. Morgan in Tokyo.”Weak yen and a higher oil price are going to be very negative for Japan, so that could also be a catalyst for a change in BOJ policy.”Bets on a policy shift or debt crisis in Japan are termed “widowmaker” trades as previous attempts to call a top in the bond market almost half-owned by the BOJ have proven wrong.There is no clear consensus that this time is any different, either, but there is enough turmoil in the market that a showdown seems to be in the offing.YEN SQUEEZEThe yen is perhaps already in the firing line.Trading around 114.70 per dollar, it is already down nearly 5% in five months. Latest data from the U.S. Commodity Futures Trading Commission (CFTC) shows leveraged funds are the most bearish on the currency since November, while speculators have also scaled up short yen trades.Fidelity portfolio manager Ian Samson said far more pressure on the yen or from inflation would be needed to break the BOJ’s resolve. “Come back when the yen is 15% weaker, and then maybe,” he said. Colin Asher, senior economist Mizuho in London, says investors will pay closer attention to the BOJ’s next policy meeting, pointing to the 2018 precedent when markets tried to test the 10-year bond’s outer bound and the central bank responded with a quick widening of that band. In any case it seems that both the BOJ and the market are strapping in for a prolonged tussle.”We … see an increase in investor bets that dollar/yen volatility will rise or at least remain high,” said Shafali Sachdev, head of FX in Asia at BNP Paribas (OTC:BNPQY) Wealth Management.”This would be consistent with a view of the market repeatedly testing the BOJ’s resolve on the cap, and having them defend it.” More

The EU and UK are preparing a “first barrage” of sanctions against Russia after Vladimir Putin ordered Russian forces into eastern Ukraine and formally recognised two rebel-held regions in the country.The Russian president’s move, which was widely condemned in the west, has raised fears of a conflict in Ukraine and came after leaders including French President Emmanuel Macron and German Chancellor Olaf Scholz failed to secure a diplomatic solution to the crisis.Putin ordered troops to enter eastern Ukraine on Monday night for “peacekeeping operations” after recognising two separatist regions of Donetsk and Luhansk. The action was swiftly condemned in the US and Europe, with Antony Blinken, the US secretary of state, describing it as a “clear attack” on Ukraine’s sovereignty.Boris Johnson, UK prime minister, said the “first barrage of UK economic sanctions” would be announced on Tuesday, warning that Putin was bent on a “full-scale invasion of Ukraine”.Explainer: Why has Putin got Donetsk and Luhansk in his sights?Go deeper: Russia’s threats to invade Ukraine are forcing China to strike a balance between President Xi Jinping’s growing support for Putin and Beijing’s self-interest in the region’s stability. Oil majors and commodity traders at risk from new sanctions on Russia.Markets briefing: Global stocks slide and oil jumps as Putin puts Russia on war footingThanks for reading FirstFT Americas. What questions do you have about the crisis in Ukraine? Share them with us at [email protected] — Wai KwenFive more stories in the news1. Crypto pushes into regulated derivatives markets Volumes in cryptocurrency derivatives registered almost $3tn last month, accounting for more than 60 per cent of crypto trading, as companies sought to meet demand from retail traders for supercharged bets on digital assets.The FT View: G20 ministers are right to take a proactive approach to crypto risks.2. Virgin Hyperloop axes half its staff in freight refocus The US company, which is backed by UAE government logistics group DP World and Sir Richard Branson’s Virgin Group, said 111 people were laid off on Friday as it pivots from passenger travel to delivering a cargo version of its experimental high-speed transport system.

Virgin Hyperloop’s transport system propels pods through low-pressure tubes at speeds of up to 670mph

3. Swiss banks struggle to move on from murky past Switzerland’s attempts to shed its reputation as the banking centre for oligarchs, corrupt officials and drug smugglers have been dealt a blow by the leak of documents detailing the accounts of 30,000 Credit Suisse clients. Shares among the country’s banks fell further than most EU lenders yesterday.4. EU targets Myanmar’s lucrative energy sector in latest sanctions The EU has imposed sanctions against almost two dozen Myanmar government and military officials as well as a state-backed oil and gas group, in the first measures targeting the country’s lucrative energy operator in the wake of last year’s coup.5. Mumford & Sons founder’s venue venture raises $50mn Musicians, tech billionaires and international financiers have backed the first external fundraising of the Venue Group Hospitality, a British music business set up by a founding member of the folk rock band and his brother, a former finance director of Soho House North America, for a US expansion. Coronavirus digestThe G20 has pledged $60bn of extra money for developing nations struggling under the financial impact of the pandemic, falling short of expectations.Opinion: The pandemic has been a wake-up call. We now have a choice: carry on as before or find a way to ensure we are better prepared for extreme risks, writes Martin Rees.Boris Johnson has announced the ending of all remaining coronavirus legal restrictions in England. The decision appeared premature, driven by political expediency rather than public health, writes our editorial board.Kate Bingham, former head of the UK’s Vaccine Taskforce, said the regulator’s ability to move nimbly during the pandemic was attracting biotech companies.The day aheadThe pandemic: The ILO Global Forum for a Human-centred Recovery begins, bringing together heads of government and organisations. Speakers include IMF managing director Kristalina Georgieva. The aim of the gathering is to propose actions to strengthen the global community’s response to the Covid crisis.Corporate earnings InterContinental Hotels Group reports preliminary full-year results. Economic data The UK releases public sector finances and the CBI industrial trends survey, Germany’s Ifo Institute monthly business confidence index is due and Italy has January inflation figures out. The US has the IHS Markit flash composite PMI, consumer confidence data and a house prices index, which is expected to have risen more than 18 per cent from a year earlier. (FT, WSJ)To give school students the latest insights on climate change, the FT is hosting a free digital event on March 1. Sign up here and look out for our Climate Change for Schools report on March 19 packed with stories, graphics and tips on how young people can make an impact.What else we’re reading How Xi Jinping’s anti-corruption crusade went global Since coming to power in 2012, the Chinese leader has targeted both “tigers and flies”, or high and low-ranking government officials, with a clear purpose: to eliminate corruption and eviscerate political rivals. A decade later, there is no end in sight and the hunt for fugitives overseas has accelerated.Richard Nixon in China — 50 years on: The former US president’s 1972 visit broke a stand-off between the two nations that had frozen ties since the Chinese Communist party victory in 1949 and helped reset the geopolitics of the cold war.

Grace Meng and Jack Ma, two Chinese citizens targeted by the security apparatus of Xi Jinping, centre © FT montage/Getty Images/AP/EPA/EFE/Shutterstock

Brookfield weighs the value of a new pillar in its complex structure The Canada-based investment group, whose eclectic $690bn portfolio includes office towers, gas pipelines and a nuclear services company, is not quite the world’s biggest investment firm — but it may be the most complicated.European bank shares are experiencing a false dawn Look at the share-price charts for Europe’s banks and one fact is unmissable: investors are finally feeling confident about their prospects. But hopes of fatter margins on lending are offset by certain risks, writes Patrick Jenkins.Opinion: Why a post-Brexit race in financial regulation is a bad strategy, writes Helen Thomas.PepsiCo squares up to supply chain emissions challenge The drinks and snacks group recently set out ambitious climate goals, as it seeks to meet targets set out in the 2015 Paris agreement on climate change. Last year, the company said it would cut greenhouse gas emissions throughout its value chain by at least 40 per cent by 2030, compared with a 2015 baseline.Peloton’s plan to conceal rust Last autumn, the home fitness company was confronted with a crisis: the paint was flaking off some of its exercise machines. Instead of returning the bikes to the manufacturer, executives hatched a plan, dubbed “Project Tinman”, to conceal the corrosion and send the machines to customers.Best New York eateries in ‘And Just Like That . . . ’The ‘Sex and the City’ reboot might not have been everyone’s dish of the day — but the cool Manhattan restaurants frequented by Carrie and the crew are in-crowd pleasers without reservation.Getting to know you: new best friends Seema (Sarita Choudhury) and Carrie (Sarah Jessica Parker) in the SoHo branch of Sant Ambroeus, by the restaurant’s famed ‘plate wall’ © Craig Blankenhorn/HBO Max/Warner Bros More

The UK public sector spent less than it received in taxes and other income in January for the first time since the start of the pandemic.The surplus in January was lower than expected, however, because of surging interest payments on government debt and increased NHS costs, reducing the fiscal leeway accumulated between April and January. Public sector net borrowing was estimated to have been in surplus by £2.9bn last month, equivalent to £5.4bn less borrowing than in the same month a year ago, data from the Office for National Statistics showed on Tuesday.This is the first surplus since January 2020, before the first restrictions were imposed, but it was lower than the £3.5bn forecast by the Office for Budget Responsibility, the UK fiscal watchdog, and by economists polled by Reuters.Paul Johnson, director of the Institute for Fiscal Studies, said chancellor Rishi Sunak “probably feels he’s got the public finances just about under control, but given his own targets to get the current budget balanced over the next few years, only just under control”.Speaking on Tuesday on BBC Radio 4’s Today programme Johnson said “this doesn’t mean that he’s got lots of room for manoeuvre, given his own targets”. He noted that the big question was whether Sunak would announce any additional measures to ease the cost-of-living crisis in his spring statement in March.In the financial year to January, borrowing was £138.5bn, the second-highest total since records began in 1993 but about half that posted in the same period the previous year.It was also about £20bn less than forecast by the OBR, a larger fiscal boost than the £12bn tax national insurance rise planned for spring to fund the NHS and social care.Central government bodies spent £76.3bn in January, £500mn more than in January 2021, even though most pandemic support schemes, including furlough, had ended.Current public spending was also higher than the £69.5bn forecast by the OBR in October, reflecting interest payments that surged to £6.1bn, nearly four times higher than in the same month last year. Interest payments are rising rapidly due to surging retail price inflation to which some government bonds are linked.Samuel Tombs, economist at Pantheon Macroeconomics, calculated that interest payments in the fiscal year ending starting in April will probably total £25bn more than the OBR anticipated in the October Budget.Public spending was also boosted by the cost of the test and trace programme during the Omicron coronavirus wave.Better news came from central government receipts, which were £91.6bn in January, up £8.6bn from the same month last year, supported by strong self-assessment income tax receipts and other taxes on work.James Smith, research director at the Resolution Foundation, said “Britain’s Omicron-defying labour market recovery is benefiting both workers and the chancellor, with tax receipts this year so far over £25bn higher than forecast by the OBR last autumn”.January’s figures were boosted by many taxes due that month and the figures suggest “that Omicron hardly hit incomes and tax revenues”, said Bethany Beckett, economist at Capital Economics. Michal Stelmach, senior economist at KPMG UK, said the underlying picture for borrowing in January was better than the data suggested because about 20 per cent of taxpayers have not submitted their self-assessment tax return on time this year, taking advantage of the extended window set by HMRC. More

Shortly before the coronavirus pandemic, Tesco, the UK supermarket chain, held a conference with its suppliers. Silviu Popovici, European chief executive at PepsiCo, recalls that the then Tesco chief executive, Dave Lewis, held up a multipack of Walkers crisps. According to Popovici, Lewis gestured at the crisps and told the attendees: “We don’t sell air — we don’t transport air and we don’t sell air”. He then warned all suppliers that, if they did not address the problem of overpackaging, their products were at risk of being removed from Tesco’s range.PepsiCo, which owns Walkers, listened: it began cutting down on packaging and bringing in more eco-friendly materials, such as cardboard.Now, the $235bn drinks and snacks group is looking to exert a similar influence on its own suppliers.Like many consumer goods companies, PepsiCo recently set out ambitious climate goals, as it seeks to meet targets set out in the 2015 Paris agreement on climate change. Last year, the company said it would cut greenhouse gas emissions throughout its value chain — including its suppliers and customers — by at least 40 per cent by 2030, compared with a 2015 baseline.That presents a significant challenge because, according to Popovici, some 92 per cent of PepsiCo’s total emissions come from outside its own operations. The upshot is that it has to persuade suppliers and customers to cut emissions amounting to 22.6mn tonnes of carbon dioxide equivalent per year — equal to taking about 5mn cars off the road. Adding to the challenge, Popovici says, is the fact that only 8 per cent of its suppliers have climate targets approved by the Science-Based Targets initiative — a well-regarded standard-setter — that are in line with its own.“It’s still very, very early,” Popovici says. “We’re saying ‘You need to step up your game’.” The maker of Mountain Dew, Doritos and Quaker Oats is not alone in the scale of the challenge it faces. According to a report released this month by climate disclosure group CDP, the companies that participate in its supply chain programme — which include PepsiCo, and collectively spend $5.5tn a year on procurement — risk falling behind on their climate aims because more than half of their suppliers lack any climate targets at all, and only one in 40 have science-based targets.Crunch time: PepsiCo is piloting a scheme to help potato suppliers cut emissions © Shutterstock / Brookgardener“Ambitious environmental action is not yet cascading down the supply chain,” said CDP, while warning that addressing supply chain emissions “is the only way to leverage change at the scale required”.PepsiCo will make changes to its transport and to the coolers used for its drinks, and will also push its suppliers to switch to renewable energy. But, to achieve its emissions goals, it must also look back along its supply chain and persuade farmers who produce millions of tonnes of commodities annually to change their own practices.When it comes to Walkers crisps, this is comparatively straightforward. While PepsiCo does not own potato farms, it often buys the crop directly from potato farmers, so it is piloting a scheme in the UK to process potato peelings into low-carbon fertiliser on its supplier farms. It calculates that this has the potential to reduce fertiliser emissions by about 70 per cent.One hurdle is winning the confidence of hard-pressed farmers. “Farmers are a very conservative business community and the only way to convince them is to test and learn,” says Popovici.But still more difficult is addressing the greenhouse gas (GHG) footprint of commodities bought from traders. Every year, PepsiCo buys about 450,000 tonnes of palm oil — a commodity that has been blamed for deforestation. Now, increased efforts are being made to enable the traceability of the crop through groups such as the Roundtable on Sustainable Palm Oil.A palm oil plantation in Malaysia. PepsiCo buys 450,000 tonnes a year of the commodity © Lai Seng/ReutersPopovici says PepsiCo wants similar mechanisms to develop for other commodities, and is trying to use its scale as a supplier to push for change. At the same time, the group wants to cut 3mn tonnes of GHG emissions by introducing regenerative farming practices — such as measures to enhance soil health — across 7mn acres, an area it says is equivalent to its whole agricultural footprint. This will be partly achieved through a network of more than 350 “demonstration farms”, and the project will be monitored by an independent group.Such projects, sometimes known as “insets”, are preferred to carbon offsets — which consist of emission reduction or sequestration projects, such as tree planting, outside a company’s own value chain — because they combat emissions closer to their source. In northern Illinois, for example, PepsiCo and ingredients group Ingredion are working with the Soil and Water Outcomes Fund, which pays farmers for switching to greener farming methods such as no-till cultivation and cover crops, to target 20,000 acres of land.But that will need to scale up rapidly if PepsiCo is to reach its goals — at the same time as addressing other urgent societal issues, such as plastic pollution and obesity.“To try to move these practices on to a very fragmented supplier base is a bit harder . . . we need to signal to the farmers that there will be a market for products that are produced differently,” says Popovici. “There are only eight harvest cycles until 2030 — that’s not so many.” More

LONDON (Reuters) – Investors were bracing for a torrid day for Russian, Ukrainian and wider global markets when they reopen on Tuesday, after Vladimir Putin upped the ante in a crisis the West fears could unleash a major war.In a lengthy televised address, the Russian president recognised two breakaway regions Donetsk and Luhansk in eastern Ukraine as independent entities and described Ukraine as an integral part of Russia’s history.Tensions have already rattled global markets this year and wiped tens of billions of dollars off the value of Russian and Ukraine assets, but Monday’s escalation is expected to cause much worse.”It is probably an understatement to say that it will be an ugly day (on the markets) tomorrow,” said Viktor Szabo, an emerging market portfolio manager at abrdn in London.”I was hoping we weren’t going to get here, but this is a significant step.”Russian markets were still open when Putin announced his decision live on television following phone calls to the leaders of Germany and France.The rouble losses reached 3.3%, while Moscow’s stock markets plunged to their lowest level in over a year as the dollar-denominated RTS index finished the day 13.2% lower and the rouble-based MOEX Russian index lost 10.5%.Analysts at Commonwealth Bank of Australia (OTC:CMWAY) warned traders ahead of the start of Tuesday’s Asian open that Putin’s decision to recognise the separatist-held areas of Ukraine would clearly exacerbate already high tensions  “Financial market participants now wait for a response from the United States and Europe,” they added.That response is expected to come in the shape of tough new sanctions. Although other steps might come first, some of the most severe measures would be to cut Russia’s banks off from the SWIFT banking system and order a complete ban on EU, UK and U.S. investment funds holding Russian government bonds. At the end of last year foreigners held just over $43 billion of OFZs, as Russia’s rouble-denominated bonds are known.”We agreed (Britain) and (the EU) will coordinate to deliver swift sanctions against Putin’s regime, and stand shoulder-to-shoulder with Ukraine,” British Foreign Minister Liz Truss said on Twitter (NYSE:TWTR) following a call with European Union foreign policy chief Josep Borrell. GRAPHIC: Russia Ukraine CDS – https://fingfx.thomsonreuters.com/gfx/mkt/klvykmxlqvg/Pasted%20image%201645485094587.png FUTURES SLUMPYields on Russia’s 10-year OFZs were expected to surge further having hit a high of 10.6% on Monday. Russia has one of the biggest stockpiles of international FX reserves in the world at $630 billion, but the cost of insuring its sovereign debt against default has also soared to its highest since early 2016.Analysts were also warning of the wider impact on global market confidence, which along with the pressures of fast-rising global borrowing costs this year, has already been hit by the tensions.Futures markets were pointing to a 1.8% fall on the S&P 500 on Wall Street later, a 2.2% drop on Japan’s Nikkei, a 2.5% drop on the Nasdaq and 3.7% slump on Germany’s DAX in Europe. Demand for traditional safe assets also saw U.S. Treasuries rally.”This step clearly increases uncertainty and thus creates further downside risk for global risk assets,” said Manik Narain, head of emerging market strategy at UBS.”We are going to see a negative reaction,” added Ken Polcari, managing partner at Kace Capital Advisors in Florida. “We are going to test the Jan. 24 lows which was 4,220 on the S&P 500”. GRAPHIC: Russia’s currency reserves – https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwxzkxvo/Pasted%20image%201644935695631.png More