Aurelia Butler

Good evening,Survey data today showed US consumer sentiment at its lowest point in more than 10 years, as rising prices take their toll on Americans’ optimism about the economy and their personal finances.The survey follows yesterday’s news of the biggest jump in US inflation for 40 years. The increase in the consumer price index (CPI) to 7.5 per cent was much higher than expected and puts extra pressure on the US Federal Reserve to speed up its tightening of monetary policy.Traders now expect a sizeable rate rise next month or even a move by the Fed in between scheduled policy meetings for the first time since 1994. This mood was further fuelled by Fed policymaker James Bullard’s call for 100 basis points worth of rate rises by July 1. The yield on the US 10-year Treasury, a benchmark for international investors and critical for mortgage rates and corporate borrowing costs, yesterday passed 2 per cent for the first time since August 2019.High inflation has tarnished US president Joe Biden’s otherwise strong economic record of jobs and wage growth as well as helping quash his $1.75tn spending proposals, which some argued would lead prices even higher.Inflationary fears are also growing across the Atlantic. Brussels cut growth forecasts for the eurozone and wider EU yesterday to 4 per cent for 2022, from its autumn forecast of 4.3 per cent. It now expects inflation to hit 3.5 per cent in the eurozone and 3.9 per cent in the EU this year before falling back to 2 per cent in 2023.Russia’s central bank, which has been one of the world’s most aggressive in raising interest rates to try and rein in inflation, today increased rates to a five-year high of 9.5 per cent, citing in particular a tight labour market.In the UK meanwhile, last week’s comments from Bank of England governor Andrew Bailey that wage demands should be moderated to avoid a wage-price spiral are still causing a stir.Increases in costs have also been a strong theme in the current corporate earnings season. Volvo Cars today warned of price rises as the cost of raw materials bite, while jumps in commodity, shipping and labour costs have led to price increases at consumer companies such as PepsiCo and sellers of everything from pet food to burritos. Soaring energy costs remain one of the biggest drivers of inflation and a drag on economic and corporate recovery, unless of course you happen to be a producer. Russia’s Rosneft and France’s Total are the latest to reportrising profits thanks to high oil and gas prices.The benchmark price of US crude rose more than 15 per cent in January and today hit $92.41 a barrel, close to its highest point since 2014. However, the International Energy Agency warned the price could rise further unless the Opec+ producer group addressed its “chronic underperformance” and increased output.Use the FT’s inflation tracker to see the effect of price rises around the worldLatest newsThe Unison trade union has asked for guidance to prevent “super spreader free-for-all” workplaces when isolation requirements end in England (PA)Up to 3,000 New York City workers who remain unvaccinated are bracing for mass sackings (NYT)Italian prime minister Mario Draghi said economic growth had slowed in the first quarter and risks ahead could damage full-year prospects (Reuters)For up-to-the-minute news updates, visit our live blogNeed to know: the economyA better than expected UK GDP increase of 7.5 per cent in December is the country’s fastest spurt of growth since the second world war. In the three months to December, GDP was still 0.4 per cent below its pre-pandemic level however, in contrast with the US, China and the eurozone, which have all recovered lost ground.The European Central Bank said it would raise capital requirements for banks unless they reduced exposure to risky loans, as it published its annual assessment of the 115 lenders it supervises. Separately, the European Systemic Risk Board, which is responsible for monitoring the financial system, said housing markets had “decoupled” from the rest of the economy since the pandemic struck, increasing risks for banks and contributing to rising household debt.Latest for the UK and EuropeUK ministers are hoping regulatory changes that will allow insurance companies to invest billions of pounds more in infrastructure, including green energy projects, can provide the economy with a post-Brexit boost. Meanwhile, the FT City Network warned of the erosion of trust in UK politics and business.FT analysis shows UK gas imports will increase substantially over the next 30 years, underlining the country’s reliance on overseas supplies. The UK already imports more than half of its gas and by 2030, this will rise to nearly 70 per cent. FT consumer editor Claer Barrett says the government’s energy rebate is failing to help the poorest.Global latestThe EU said it would give €125mn to help vaccine distribution in Africa after the UN-backed Covax programme said shortages of syringes and medical equipment was hampering its efforts. According to the World Health Organization, $23bn is needed to help low and middle-income countries end the emergency phase of the pandemic. The experience of Malawi highlights the logistical challenges they are up against.President Cyril Ramaphosa said South Africa, the first major country to be hit by the Omicron variant, would lift its pandemic national state of disaster to enter a “new phase” of dealing with the virus.Hong Kong stands as a reminder that Omicron is not done yet. The Mandarin Oriental hotel group is looking to temporarily relocate staff as restrictions bite.Need to know: businessA parliamentary report said UK tax authorities were “soft on fraud” over the “unambitious” plan to recover the almost £6bn paid out incorrectly by the Covid support scheme.Carmakers shut plants in the US and Canada as protests by Canadian truckers over mandatory vaccination escalated, putting further pressure on already under-strain supply chains.Protesters block the Ambassador Bridge, a critical crossing between the US and Canada that carries about $300mn in goods a day © Geoff Robins/AFP/GettyThere were no such qualms from AstraZeneca, whose sales of vaccines helped it to achieve a record $12bn in fourth-quarter revenues and announce an increase in its dividend. The UK pharma company sold its first jabs, which are significantly cheaper than the mRNA shots from BioNTech and Pfizer, on a non-profit basis but did not give detail of revenues from new contracts.Despite the backdrop of soaring raw materials prices and supply chain bottlenecks, German conglomerate giants Siemens and Thyssenkrupp reported stellar results for the last quarter of 2021.Science round upPandemic management: As we wrote in our last edition, recent announcements have fuelled a feeling that the end of Omicron is in sight. One prominent epidemiologist, referring to the lifting of restrictions in England, adds an important caveat: “It could be the last time we have legal limits in place but it doesn’t mean the end of the pandemic. ​The virus has been one step ahead of us every time . . . we can’t just ignore it. That would be folly.”The total number of global infections has now passed 400mn. Use our coronavirus tracker to compare the situation across the world.Vaccines: Science columnist Anjana Ahuja examines what malaria research can tell us about vaccinating children against Covid.Our Big Read looks at the race for a “super jab” that could offer protection not only against new variants of the current virus but any future coronaviruses that may emerge.Get the latest worldwide picture with our vaccine trackerAnd finally…Organisers hope next month’s Academy Awards can be a comeback story after last year’s low-key (and low TV ratings) ceremony. Film critic Danny Leigh looks at this year’s Oscar contenders.Steven Spielberg’s ‘West Side Story’ adaptation is nominated at the Oscars in seven categories © Niko Tavernise More

We are approaching the point of peak hand-wringing over inflation and peak scrutiny of central bankers. This can only go badly for financial markets.US inflation data released this week gave the strong impression that policymakers have been caught napping. The annual inflation rate exceeded economists’ expectations and struck yet another 40-year high at 7.5 per cent in January, up from 7 per cent in the previous month. Traders have been repeatedly smacked in the face by surprisingly high inflation readings for a year. You would think they might be getting used to it by now. Apparently not, judging from the market reaction.Bets on an even more aggressive pushback from the US Federal Reserve hit new extremes; selling pressure in benchmark 10-year US government bonds took the yield above 2 per cent for the first time since 2019. In the more interest rate-sensitive bits of the market, chiefly two-year debt, moves were even more chunky. Yields there, which hovered at just 0.4 per cent as recently as November, leapt to a high of 1.64 per cent in the biggest sell-off since 2009.But the scale of the moves was not just down to the inflation numbers themselves. Fanning the flames, St Louis Fed president, James Bullard, a voter on the Fed’s rate-setting committee, told Bloomberg that he would like to see the benchmark interest rate rise by a full percentage point by July, including a half-point rise for the first time in more than 20 years. He even sounded amenable to the Fed stepping in and raising rates now, before its next scheduled rate-setting meeting. This is like the crisis-fighting easing mode of 2020 but in reverse.His intervention meant that just as stocks were recovering from the initial shock of the data, they stumbled further. “Bullard killed it,” as one banker put it. “Well played.”It is a point that bears repeating: central bankers do not exist purely to make long-only equity fund managers’ lives easier. If they did, then they would be failing on their mandate pretty badly by now — the S&P 500 benchmark index of US stocks is down by more than 6 per cent already this year, while the tech-filled Nasdaq Composite has dropped more than 10 per cent.Nonetheless, the scale of the recalibration in markets is extraordinary. As recently as October, market participants dared to bet that we might see one rate rise from the Fed this year. They are now pricing in six or more.Goldman Sachs is expecting seven — up from five before the inflation numbers landed. “We see the arguments for a [half point] rate hike in March,” Jan Hatzius, chief economist at the bank wrote, noting that the central bank has not kicked off a rate-raising cycle in that manner since the 1980s and has not delivered an emergency rise in rates since 1994.The trick here is figuring out how much of the tough talk from central bankers is just for show. This is not easy, for investors or for the policymakers themselves, and further bolsters the case for the only certainty in markets this year: volatility.Karen Ward, chief market strategist for Europe at JPMorgan Asset Management, is not convinced. “We are in peak inflation hysteria at the moment,” she says. “As soon as the numbers are at least heading down, that will take the pressure off the central banks.”She adds: “There’s a scenario where central banks do slam on the brakes rather than easing off the accelerator. That’s not what we’re expecting. I think some of the statements we’ve heard recently are rhetoric rather than intention. They want to show that they are not asleep on the job, that they will do whatever it takes, and I understand that pressure to do that.”A slower, steadier series of quarter-point rises from the Fed through this year and beyond, landing at a higher point than the market is pricing, is the more likely outcome, says her colleague Mike Bell.So what do central bankers say next? In retrospect, it might be better if the answer was nothing. The scope for misunderstandings, exaggerations and missteps is arguably not worth the bother. But this genie is well and truly out of the bottle. Back in 2014, on his way out of the Fed, governor Jeremy Stein offered some thoughts on this matter that still resonate now. “In some circumstances there are very real limits to what even the most careful and deliberate communications strategy can do to temper market volatility,” he said in a speech. “This is just the nature of the beast when dealing with speculative markets. There is always a temptation for the central bank to speak in a whisper, because anything that gets said reverberates so loudly in markets. But the softer it talks, the more the market leans in to hear better and, thus, the more the whisper gets amplified. So efforts to overly manage the market volatility associated with our communications may ultimately be self-defeating.”Nobody wants to inject needless, avoidable shake-ups in to asset prices. But monetary policy is data-dependent and the data are pretty wild. It increasingly feels like there’s no way out of this situation without a [email protected] More

Europe’s financial regulators are warning the region’s housing market has “decoupled” from the rest of the economy since the pandemic hit, increasing risks for banks due to soaring property prices, loosening lending standards and rising household debt levels.The European Systemic Risk Board, the authority responsible for monitoring and preventing dangers to the European financial system, signalled its concern on Friday by calling on seven of the 30 countries it oversees to take action to curb the risks created by surging house prices. Fuelled by low interest rates, residential property prices in the EU rose 9.2 per cent in the year to September 2021 — the fastest growth since just before the 2008 financial crisis and well ahead of growth in both European wages and gross domestic product. Yet when the pandemic began in 2020, most European financial regulators removed measures designed to increase banks’ resilience to a potential correction in housing markets by building up extra capital in good times so they can absorb losses in a crisis. As the European Central Bank prepares to tighten monetary policy in response to multi-decade high levels of inflation, borrowing costs are set to rise for housebuyers, which could depress prices and make it harder for some households to keep up with payments on variable-rate mortgages.On Friday, the ESRB called on Germany and Austria to introduce more safeguards — such as capping borrowers’ debt at a set multiple of their income and forcing lenders to have more capital. It also warned Bulgaria, Croatia, Hungary, Slovakia and Liechtenstein about increasing housing market risks. The “key vulnerabilities” it identified included “rapid house price growth and possible overvaluation of residential real estate, the level and dynamics of household indebtedness, the growth of housing credit and signs of a loosening of lending standards”. Decisions by the ESRB, chaired by ECB president Christine Lagarde, are not binding. It can only issue warnings and recommendations to countries about the need to act over housing market risks, as it has done since 2016.EU households increased their debt as a proportion of incomes to 107.2 per cent in the first quarter of 2021, up from 101.9 per cent in the fourth quarter of 2019.The ESRB said housing market risks were also elevated in Norway, the Netherlands, Sweden, Denmark and Luxembourg — where household debt levels were the highest — exceeding 180 per cent of income in all five countries. But it issued recommendations to four of those countries in 2019 and thinks Norway has taken sufficient measures already. Both Germany and Austria have already received the ESRB findings and responded with plans to introduce some of the measures it recommended. German banks will need to have €22bn of extra capital buffers by next year based on the size of their domestic assets and their residential mortgage exposure — though most already meet the requirements.Austrian authorities plan to introduce legally binding rules limiting the mortgages people can borrow in relation to their income and the value of a property as well as how long they have to pay it back, after many banks ignored non-binding “sustainable lending standards”.Neither country went as far as recommended by the ESRB. Germany did not introduce limits on mortgage lending, while Austria decided against requiring banks to build up extra capital, known as a countercyclical buffer. Claudia Buch, vice-president of Germany’s central bank, told the Financial Times last month that if the country’s banks did not “think twice” about the recent trend for some to provide mortgages for the entire value of a property with little or no deposit, they could face legally binding limits on how much they can lend against a property. More

(Reuters) – Signs are growing that a global supply chain crisis which has confounded central bank inflation forecasts, stunted economic recoveries and compressed corporate margins could finally start to unwind towards the end of this year.But trade channels have become so clogged up it could be well into next year before the worst-hit industries see business remotely as usual – even assuming that a new turn in the pandemic doesn’t create fresh havoc.”We’re hoping in the back half of this year, we start to see a gradual recession of the shortages, of the bottlenecks, of just the overall dislocation that is in the supply chain right now,” food group Kellogg (NYSE:K) CEO Steve Cahillane told Reuters.But he added: “I wouldn’t think that until 2024, there’ll be any kind of return to a normal environment because it has been so dramatically dislocated.”The global trade system had never contended with anything quite like the coronavirus.Starting in 2020, companies reacted to the economic downturn by cancelling production plans for the next year, only to be blindsided by an upswing in demand prompted by rapid vaccine rollouts and fiscal support for rich-world household spending.At the same time, virus containment measures and infection clusters triggered labour shortages and factory shutdowns just as consumer spending was shifting from services to goods.European Central Bank Chief Economist Philip Lane likened the fall-out to the aftermath of World War Two, when demand exploded and firms had to quickly retool from production of military to civilian goods.Export-led economies like Germany have seen recovery choked by supply bottlenecks to their factories, while surging shipping costs have combined with higher fuel prices to push U.S. inflation to a four-decade high.MIXED MESSAGESNow, as the milder Omicron variant prompts authorities to loosen restrictions, there are tentative signals that supply snags may be unwinding.Last week’s Institute for Supply Management (ISM) survey showed signs of improvements in U.S. labour and supplier delivery performance for a third month, and purchasing manager testimonies in Europe also suggested easing pressures.”Although supply chain constraints continued to stymie growth, there were signs that these were past their peak, a factor contributing to a slight easing in purchase price inflation,” IHS Markit said of the UK read-out.While this has raised central bankers’ hopes of a more tangible reduction in inflationary pressures towards year-end, they also know that messages from the real economy remain mixed.Soren Skou, head of shipping giant Maersk, said this week he was working on the assumption that more people would return to work at ports, more newly-built ships would come on line and that consumers would start to favour services again.”At some point during this year, we will see a more normal situation,” Skou predicted.While German shipper Hapag Lloyd also saw delivery bottlenecks and freight prices easing in the second quarter, the big unknown for the sector is just how long the return to more reliable delivery schedules will take.Supply chain analyst Sea-Intelligence said the current logjam had no precedent but past experience suggested it would take 8-9 months for port and hinterland networks to recover.”That said, the market is showing no indication that we have started on the path to resolution,” Sea-Intelligence CEO Alan Murphy said in an analysis of current trends compared to past data on average vessel delays caused by disruptions.NOT LIKE PRE-COVIDAny resolution will be dependent on there being no further knocks to severely strained supply chains.Those fragilities were highlighted on Thursday as Toyota, General Motors (NYSE:GM), Ford and Chrysler-parent Stellantis said production had been hit at their North American plants due to parts shortages stemming from Canadian trucker protests against pandemic mandates.Japanese, German and International Monetary Fund officials have all meanwhile raised concerns about a worsening of bottlenecks if China’s zero-COVID policy – which has included sealing off entire cities – is deployed in full against local outbreaks of Omicron.For the consumer, it will be some time before they see any tangible unwinding of supply chain pressures – and they should not necessarily expect a return to pre-pandemic levels of pricing or availability.Executives at automotive and other manufacturers say they expect prices for a range of raw materials to rise during the year, but they are confident they can raise prices for their products to cover some or all of the increase. U.S. motorcycle-maker Harley-Davidson (NYSE:HOG) said it was making do with a much more limited inventory by putting in place a reservation system for customers to order bikes.Jens Bjorn Andersen, chief executive of transport and logistics group DSV, said the dislocation had been so complete that, whatever emerges, the sector will not look the same as it did before COVID-19. He added: “I never use the word normalization.” More

In a statement issued at the end of discussions with South Africa, the IMF said the country’s recovery from the COVID-19 pandemic had been faster than expected, but its durability remained uncertain.South Africa’s National Treasury responded by saying it was “somewhat more optimistic” than the IMF on the medium-term growth outlook, seeing a gradual recovery in investment and confidence.”The National Treasury acknowledges the difficult juncture South Africa is at,” it said in a statement, adding it was committed to placing public debt on a declining path and reducing budget deficits.The IMF forecasts South Africa’s economic growth at 1.9% in 2022 after an estimated 4.6% rebound in 2021, but sees it easing to 1.4% in the medium term. The National Treasury did not give its latest growth forecasts in its Friday statement.”The economic recovery is deemed fragile, as it was accompanied by worsening unemployment, weak bank lending to the private sector and anaemic private investment. Despite the growth rebound, poverty and inequality did not show signs of improvement,” the IMF said.IMF directors commended the government for a strong policy response to the pandemic but outlined a variety of areas requiring improvement. It said the looming budget on Feb. 23 provided an opportunity for concrete measures to contain public sector wages, rationalise bailouts of state companies, streamline tax expenditure and better target education subsidies. More