Aurelia Butler

A Chinese court has sentenced three port workers to up to 57 months in prison for breaching Covid-19 containment rules, as authorities intensified efforts to stamp out the virus and companies warn about growing supply chain risks.Three workers at a company that handles imported goods in the north-eastern port city of Dalian were sentenced to between 39 and 57 months for violating Covid containment measures in 2020, including not wearing masks and protective clothing when handling cargo. The company was also fined Rmb800,000 ($126,000) after the breaches led to an outbreak in the city, according to court documents.The lengthy prison sentences were delivered as Chinese authorities have tightened restrictions in areas hit by Omicron outbreaks in pursuit of a zero-Covid strategy. Authorities in Tianjin, a city of 14m about 120km east of Beijing, ordered another round of compulsory testing for all residents on Wednesday after 36 symptomatic new cases were discovered, according to state news agency Xinhua. Authorities on Tuesday placed Anyang, a city of 5m people, under lockdown after two cases of the Omicron variant were found to have spread from Tianjin.Xi’an, a central Chinese city of 13m, has been under strict lockdown measures since last month, leading some residents to complain of food shortages. The lockdowns have threatened to disrupt global supply chains, with companies warning of potential risks to manufacturing. Toyota, the Japanese carmaker, said it had halted production at a facility in Tianjin until the safety of local communities and business partners was confirmed.Samsung Electronics and Micron Technology, have previously warned that the Covid restrictions could disrupt their chipmaking operations in Xi’an.Omicron’s spread through Asia could prove more damaging to supply chains than previous waves of the pandemic, warned Frederic Neumann, HSBC co-head of Asia economics research.

“Given the extraordinarily high transmissibility of this variant, the risks are rising of major outbreaks across the region. Even Hong Kong and mainland China, shielded by some of the world’s toughest external quarantine measures, have seen Omicron slip through their defences,” he said.The severe punishments in Dalian reflected China’s assertion that Covid could be spread via imported frozen goods and packaging. The claims are politically sensitive and form the basis of the government’s argument that the virus may not have originated in the country. China’s National Health Commission reported 166 new local symptomatic cases and four local asymptomatic cases, which are classified separately, on Wednesday. Additional reporting by Maiqi Ding in Beijing, Eri Sugiura in Tokyo and Edward White in Auckland More

A jump in real yields — the return bond investors can expect once inflation is taken into account — has jolted markets in early 2022 and is behind a pullback in high-flying technology stocks, investors say. The yield on 10-year inflation-linked US government bonds has surged 0.24 percentage points since the end of December to minus 0.86 per cent, as investors position for the end of the Federal Reserve’s bond-buying programme and bet on interest rate rises from the US central bank this year.The move has come at a time when investors have become slightly less anxious about high inflation over the coming decade, or at least more confident that the Fed can keep a lid on price rises. Real yields have risen more than yields on ordinary US Treasuries so far in 2022. That means the gap between the two — which is known as break-evens and is a closely followed gauge of investors’ inflation expectations — has fallen slightly, from 2.60 percentage points to 2.58 percentage points.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

In the bond market turmoil, investors say it is the rise in real yields that is most concerning for riskier assets, feeding declines in everything from stocks to bitcoin in a reversal of the “everything rally” during the pandemic when a collapse in real yields was linked to gains for assets of all stripes.“Real yields are what is truly impactful for markets, and seeing them rise will really test risk assets,” said Seema Shah, chief strategist at Principal Global Investors. For investors, higher real yields on ultra low-risk government debt make other assets relatively less attractive. That logic is particularly painful for the highly valued corners of the equity market that have benefited most from very low interest rates. The tech-focused Nasdaq Composite has suffered its worst start to the year since 2016, falling more than 3 per cent in the first trading days of the year. For lossmaking tech companies and businesses that only recently went public, the declines have been worse, according to closely followed Goldman Sachs indices. Shares of non-profitable tech companies are down 7 per cent so far this year, while initial public offerings in the past year have fallen roughly 9 per cent.Higher real yields are also likely to feed through to higher borrowing costs for companies, analysts say. “Real yields tell you the true level of funding costs, without hiding behind inflation, so we’re going to learn a lot about the genuine health of corporate balance sheets,” Shah said.Research by Deutsche Bank analyst Jim Reid shows corporate credit spreads — the extra yield investors demand a company pays to lend to it compared with the US government — have become increasingly correlated with real yields in recent years, tending to widen when real yields climb. Highly-indebted companies are sensitive to changes in real yields, Reid argued because they offer a better indication than nominal yields of how sustainable a corporate debt load is. Real yields in the US sank to all-time lows in 2021 as investors, rattled by the surge in inflation, poured a record $70bn into funds holding inflation-protected government bonds, or Tips, over the course of the year, according to data from EPFR. Some analysts also attributed part of the move in real yields in 2021 to limited supply: the Fed through its quantitative easing programme has been buying $6.5bn of Tips a month, limiting the availability of the bonds for ordinary investors. The central bank owns roughly 22 per cent of Tips outstanding, up from 9 per cent at the beginning of 2020. With Fed purchases slowing and set to end in the months ahead, Tips prices are likely to slide — dragging up real yields — according to Sam Lynton-Brown, head of developed markets strategy at BNP Paribas. That could exacerbate the move higher in real yields. “You’re effectively talking about financing costs going up for the entire economy,” said Antoine Bouvet, a rates strategist at ING. “Unless people are getting much more optimistic about growth, that’s a worry for risk assets.” More

A hidden battle is raging over inflation. Alongside the public fight over how to defuse the looming cost of living crisis, there is a guerrilla war going on about how UK inflation is measured and if that calculation can be changed retrospectively.The evidence for the battle is published every month by the guardians of truth in official numbers — the Office for National Statistics. Its consumer prices bulletin publishes not one but three different rates of inflation. When the next batch is revealed, two bets are pretty safe: all three will be different and they will be higher than the 4.6 per cent, 5.1 per cent, or 7.1 per cent it published in December. The range is massive. The highest is 2.5 percentage points above the lowest. If your pension was linked to that, the rise would be 54 per cent more than if it was linked to the lowest. Yet the government’s latest plan is to do just that. The lowest rate happens to be the ONS’s preferred measure called CPIH which stands for consumer prices index (including housing). It is the one which has topped ONS press releases and briefings since its launch in March 2017. To find any other measure you need to burrow down or even download a spreadsheet to find all the others.Despite that, the media doesn’t report CPIH and it is not used in the real world for any practical purpose except by Ofwat for setting controlled water prices. It has been criticised for using changes in rent as a proxy for housing cost changes for the 65 per cent of householders who are owner occupiers.Until 2011 just one measure of inflation was used — the retail prices index or RPI. It is currently the highest of the three and has been used since its introduction in 1947 for any official calculations relating to the cost of living, including wage bargaining. It is so prevalent that it has been back-calculated by ONS boffins to the reign of Edward I in 1270 and is still used for historical calculations to tell us what £100 in Victorian or Elizabethan times is “worth” now. But statisticians said the RPI was flawed and wanted to replace it with the more internationally favoured measure called consumer prices index or CPI (no H yet). The government gladly accepted their advice largely, cynics say, because CPI was lower than RPI. That is due almost entirely to what is called the formula effect. The RPI aggregates multiple prices using a simple arithmetic mean or average — add them up and divide by how many there are. The CPI uses the geometric mean — multiply the prices together and take the nth root where n is the number of items. For positive numbers that always gives a lower number. Since January 2015 the average reduction in inflation due to this formula effect is 0.81 percentage points. Last month it was 1.16 out of the 2 percentage points difference between the two. CPI was published from 1997 but it was only in 2011 it became the official government measure of inflation and was used to raise benefits — saving £2bn a year, cumulatively — and has come to replace RPI for other things such as lifting tax allowances — that is, when they are not frozen to save even more money. Two years later RPI was dealt another blow when it was declared by the National Statistics Authority to be no longer an official statistic. The Authority and ONS advise against using RPI.Despite that, the ONS publishes RPI each month because it is used in many calculations, not least where it ultimately saves the government money such as in raising controlled rail fares — which reduces the Treasury subsidy — and the interest charged on student loans — which means more money is paid.

It is also baked into the contracts of many company pensions which specify RPI for the annual cost of living increase. Most pension schemes where the contract does not specify RPI have made the change to CPI — a welcome relief for the fund if not the pensioners. But where RPI is specified the Supreme Court ruled in November 2018 that it cannot be changed. The biggest problem for the government is the £819bn of index-linked gilts. They account for nearly a quarter of all gilts and are linked to the RPI — a phenomenal return now RPI is 7.1 per cent compared with a 25-year gilt issued in January 2021 which paid just 0.825 per cent. The government now plans to keep RPI but redefine its arithmetic so in effect it becomes CPIH. That will happen with the RPI issued in February 2030. Holders of index-linked gilts and others will not be compensated — a saving says Insight Investment of £100bn to the government over the life of the bonds and a cut in the value of pensions by 10 to 15 per cent. In December, the High Court gave three major pension funds with 450,000 members the right to challenge the plans. The judicial review hearing is expected in the summer. The government’s defence could be published as soon as February.  The battle for RPI continues.Paul Lewis presents ‘Money Box’ on BBC Radio 4, on air just after 12 noon on Saturdays, and has been a freelance financial journalist since 1987. Twitter: @paullewismoney More

Fed prepares to shrink its $9tn balance sheet, US prices expected to have risen again last monthYour browser does not support playing this file but you can still download the MP3 file to play locally.Read a transcript of this episode on FT.comA US judge says that the Federal Trade Commission can go ahead with a revised case seeking to break up Facebook, and the latest US inflation report is expected to show prices rose at their fastest pace in nearly 40 years. Plus, the FT’s US markets editor, Eric Platt, explains how the Federal Reserve is expected to wind down its $9tn balance sheet after a pandemic largesse. Mentioned in this podcast:Facebook loses bid to dismiss FTC antitrust case a second timeUS inflation expected to rise at fastest pace in nearly 40 yearsFederal Reserve prepares to shrink $9tn balance sheet after pandemic largesseHot-water bottles are… hotThe FT News Briefing is produced by Fiona Symon and Marc Filippino. The show’s editor is Jess Smith. Additional help by Peter Barber and Gavin Kallmann. The show’s theme song is by Metaphor Music. Topher Forhecz is the FT’s executive producer. The FT’s global head of audio is Cheryl Brumley.  See acast.com/privacy for privacy and opt-out information.Transcripts are not currently available for all podcasts, view our accessibility guide. More

TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Wednesday that consumer inflation was expected to gradually accelerate on rising energy costs and an expected increase in demand driven by a moderate economic recovery.”Japan’s economy is picking up as a trend, although it remains in a severe state due to the impact of the coronavirus pandemic,” Kuroda said in a speech to a quarterly meeting of the central bank’s regional branch managers. More

BENGALURU (Reuters) – The Bank of Korea is likely to raise its policy rate back to where it was before the pandemic on Friday, a Reuters poll found, as it looks to restrain rising inflation and the increasing debt that households are taking on to buy property.Twenty-five of 35 economists who answered a Jan. 5-11 Reuters poll said the BOK would raise its base rate by 25 basis points to 1.25% at its Jan. 14 policy meeting. This was its level in February 2020, just before the coronavirus crisis broke out.South Korea’s central bank was the first and only one among its main Asian peers to raise interest rates twice last year, most recently by 25 basis points at its last meeting, in November.The BOK has not raised rates at back-to-back meetings for over two decades. “Although economic uncertainties at home and abroad are increasing, Governor Lee Ju-yeol reaffirmed his will to normalise monetary policy to respond to financial imbalances through remarks on rising housing prices and increasing household debt,” said Paik Yoon-min, fixed-income analyst at Kyobo Securities.”The fact inflationary pressure can continue for a considerable period of time is also considered a factor that strengthens the justification for an interest rate hike.”Inflation in Asia’s fourth-largest economy accelerated last year to its highest level since 2011, far outpacing the central bank’s own forecasts, suggesting to policymakers that a period of higher prices would last longer than anticipated.That bolsters the case for the BOK to prevent inflation accelerating further at a time when house prices have gone through the roof.After an expected rise on Friday, the BOK was forecast to stay on hold in the first half of this year and then deliver another rate rise in the third quarter to 1.50%. It was then expected to stay there at least through 2023.Still, over one-quarter of respondents did not pencil in a rate hike at the Jan. 14 meeting. “The Bank of Korea rarely hikes interest rates at consecutive meetings. After November’s increase, we expect the policy rate to be left unchanged on Friday,” said Alex Holmes at Capital Economics, who sees three rate increases later this year. GRAPHIC – Reuters Poll: Bank of Korea policy and South Korea economic outlook South Korea is also gearing up for a presidential election in March. Some analysts say the recent surge in cases of the Omicron coronavirus variant will encourage the BOK to be cautious in its monetary policy.Six of seven respondents to an additional question said risks to their inflation forecasts were skewed more to the upside.Five of the seven said risks to their growth forecasts were skewed to the downside.The economy was expected to expand 2.9% and 2.5% this year and next, a slowdown from last year’s 3.9%, based on median forecasts from the poll.(For other stories from the Reuters global economic poll:) More

German industry has been hit by supply shortages of microchips and other components, while rising coronavirus cases are clouding the outlook for retailers at the start of 2022. “There is no risk of collapse, but of a massive disruption of the supply chain – at least temporarily,” BGA President Dirk Jandura was quoted by Funke newspaper group as saying. Although many wholesalers around the world have made their supply chains more flexible, disruptions in global delivery networks might still occur, he said.”You cannot fully cover yourself against a global pandemic,” Jandura said, calling for government support through lower energy and electricity prices and other forms of help.Omicron now accounts for more than 44% of coronavirus infections in Germany, the Robert Koch Institute (RKI) for infectious disease has said. Germany reported 45,690 cases on Tuesday, 49.5% more than on the same day a week ago. Concerns that the new variant could bring critical services to a halt prompted the German government to tighten the rules for restaurant and bar visits and to shorten COVID-19 quarantine periods.Germany’s Chamber of Commerce (DIHK) welcomed the new isolation regulations but said it was concerned about a growing number of infections in the logistics sector, which is already suffering from staff shortages, and warned of consequences for food retail and medical production sectors. More