Raphael Stevens

AT LEAST BY comparison with last year’s disaster, when it crashed by 44% against the dollar, Turkey’s lira has had a good run of late. Since January the currency has lost only 4% of its dollar value. Part of the reason is a scheme to protect lira deposits against swings in the exchange rate, which the government introduced in December, and which has suppressed demand for hard currency. Another factor is a series of interventions in currency markets by Turkey’s central bank. The latest of these came on February 22nd, when the bank reportedly sold about $1bn in foreign reserves, helping the currency absorb some of the shock waves from the run-up to Russia’s invasion of Ukraine.The lira may have recovered its footing. But the spike in inflation set off by the currency’s collapse last year is here to stay. The officially reported inflation rate rocketed to a ghastly 48.7% year-on-year in January. Forecasts see the rate peaking in the spring, and finishing the year well above 30%, thanks largely to base effects. Surging energy prices, as well as widespread fears that the government has been massaging the inflation data, have sparked protests in parts of the country. The leader of Turkey’s main opposition party has announced he will not pay his electricity bills unless President Recep Tayyip Erdogan’s government reverses recent price rises.Unfortunately for Turks, who are quickly becoming used to stockpiling non-perishables and basic necessities, stabilising the exchange rate will not be enough to bring inflation under control. Inflation is bound to remain high because of rising wages (Turkey recently increased the minimum wage by 50%), strong retail demand and continuing increases in energy and commodity prices.Most problematic is Turkey’s insistence on keeping interest rates low. After a series of cuts last year, the central bank’s benchmark rate is 14%, a whopping 35 percentage points below the rate of inflation. Down the line, Turks may question the wisdom of keeping their money in the banks when the interest on their deposits, even those protected from currency shocks, is so much lower than inflation, says Selva Demiralp, an economics professor at Istanbul’s Koc University. They may instead decide to spend on consumer durables or property, further fuelling price growth.Reining in inflation is hard enough with orthodox monetary-policy settings. (Ask Brazil, where inflation is into the double digits despite a number of interest-rate rises.) With Turkey’s, it is impossible. This will not change soon. Obsessed with growth and convinced, wrongly, that the way to tackle inflation is by cutting rates, Mr Erdogan has sworn to keep borrowing cheap. “We cannot sacrifice the growth rate,” acknowledges Cevdet Yilmaz, a ruling-party lawmaker.This does not mean that hyperinflation is on the cards. Price increases of the kind Turkey expects to see over the coming months tend to push down demand, says Gizem Oztok Altinsac, chief economist at Tusiad, the country’s biggest business association. This creates a buffer preventing inflation from reaching triple digits, she says. But with persistent structural problems, and the central bank’s credibility shattered, bringing it back down to the single digits, or even below 20%, will probably take years. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Getting sticky” More

TWENTY YEARS ago Mediobanca was the epicentre of the salotto buono (the “fine drawing room”), a group of old-fashioned firms whose web of cross-connections dominated Italian business. Times have changed. Today the Milanese bank is in the modernising camp in a fight with two super-seniors over the future of 190-year-old Generali, Italy’s biggest insurer. Its outcome could decide whether Italy’s corporate governance is at last thrust into the 21st century.The power struggle pits Alberto Nagel, boss of Mediobanca, against Leonardo Del Vecchio, the 86-year-old founder of Luxottica, an eyewear giant, and Francesco Gaetano Caltagirone, a 78-year-old construction tycoon. Both sides own big stakes in Generali: Mediobanca controls 17%, while the pair together own 14%. At stake is the future direction and governance of one of Italy’s biggest firms. Mr Nagel thinks Generali is on the right path under the stewardship of Philippe Donnet, the group’s French CEO whose mandate is up for renewal at the annual general meeting (AGM) in April. Messrs Del Vecchio and Caltagirone are agitating for regime change at the venerable Trieste-based insurer.Exactly why is not clear. They have not come up with a business plan or an alternative candidate for CEO. They seem unhappy with Generali’s mergers-and-acquisitions strategy, which they consider too timid. The firm’s recent takeover of Cattolica, a parochial rival, was not the kind of deal they want to see, which is big and international. They complain that Generali should do more to digitise its operations.In fact Mr Donnet seems to have done a good job at Generali. He has strengthened its capital position through the sale of peripheral businesses and improvements in profitability. He has lowered its debt burden and changed its business mix away from products that eat up too much capital, such as guaranteed life-insurance contracts, to fee-paying ones, such as property and casualty policies. In recent months he has led acquisitions that increased Generali’s share in core European markets. And Generali has pioneered software that writes insurance contracts on its own.What’s more, Generali has become a cash machine that makes institutional investors happy, says Andrew Ritchie of Autonomous Research. When Mr Donnet presented his three-year plan in December he promised cumulative dividends of almost €6bn ($6.8bn), forecast an annual rise in earnings per share of 6% to 8% and announced a €500m buyback.So what motivates the dissident duo? A loss of influence, perhaps. In the old days of the salotto the CEO of Generali would dine with important shareholders before announcing strategic decisions or new board members. Those days are gone as the insurer continues to bring its governance in line with European norms. Under rules Mr Donnet introduced in 2020, the outgoing board last month recommended new directors for the ten-strong body—as is the case at some continental blue-chips. The duo dislike the new rules.On the face of it they scored a victory on February 18th, when Gabriele Galateri di Genola, Generali’s chairman, said he would step down at the end of his third term in April. But Mr Galateri did not leave because the duo pushed him out. He left because he supports Mr Donnet’s drive to modernise Generali: under the new governance rules, three terms is the maximum.It is likely, in fact, that Mr Donnet will still be in his job after the AGM on April 29th. Analysts assume that Mr Nagel and investors who represent 35% of shares will prevail. This may upset the silver-haired rebels—but there is a silver lining, too. As top shareholders, they stand to pocket giant dividends in the coming years. ■This article appeared in the Finance & economics section of the print edition under the headline “Ciao, salotto buono” More

COVID-19 HIT India hard, leaving millions jobless and struggling to get by. Yet Sachin Rana, who runs a jewellery stall in New Delhi’s Malviya Nagar market, says sales have been booming since lockdowns ended. After months in isolation, consumers were keen for a blowout during Diwali, a festival in November. A bumper wedding season has followed, creating plenty of occasions to wear jewellery or give it as a gift.The pandemic has proven that “Indians will never stop buying gold”, says Mr Rana. Pent-up demand for pendants and parties pushed bullion sales to the highest on record in the last quarter of 2021, reckons the World Gold Council, an industry body that has tracked consumption since 2005. Indians picked up around 340 tonnes of gold over the period, equivalent to the weight of five healthy Indian elephants every week.India’s special relationship with gold predates covid-19, of course. It is the world’s second-largest market for the yellow metal, behind China, though it produces almost none at home. This is partly driven by tradition. Brides are given jewellery as part of their dowry and it is deemed auspicious to buy bullion around certain religious festivals. It is a handy store of undeclared wealth, too, often stashed in wardrobes or under the mattress.But the pandemic has also affirmed an investment advice passed on over generations: park savings in gold as a rainy-day fund. In the past two years many families have made ends meet by selling jewellery, ornaments, bars and coins at pawn shops and informal markets. Others have borrowed against the stuff. The three largest non-bank financial companies offering gold loans saw their assets jump by 32%, 25% and 61% year on year, respectively, in 2020. Gold’s appeal as a safe haven is only rising: as tensions escalate in Ukraine, its price is approaching records.This insatiable appetite is a worry for policymakers. Vast gold imports can destabilise the economy. During the 2013 “taper tantrum”, when India’s foreign-exchange reserves were lower than they are now, a rush of gold imports helped push the current-account deficit to 4.8% of GDP and fuelled worries of a currency crisis.Savings stashed away as idle gold could be put to more productive use elsewhere. Indian households hold 22,500 tonnes of the physical metal—five times the stock in America’s bullion depository at Fort Knox and worth $1.4trn at current prices. The average family has 11% of its wealth in gold (against 5% in financial assets).The government has tried using sticks to push people away from bullion. Import duties hover around 10%, even after cuts in last year’s budget aimed at keeping smuggling in check.It is also experimenting with carrots that lure savers away from physical gold. The central bank has ramped up issuance of sovereign gold bonds, which are denominated in grams of gold. Of the 86 tonnes’ worth issued since 2015, about 60% were sold after the pandemic began. And the gold monetisation scheme, which allows households to hand gold over to a bank and earn interest, was revamped last year to reduce limits on the size of deposits.Lockdowns inadvertently helped the state’s agenda. Researchers at the Indian Institute of Management in Ahmedabad found that when shops shut and sales of physical gold ground to a halt, some Indians turned to online alternatives. Mobile payments platforms like PhonePe and Google Pay reported rising appetite for digital gold, which is sold online and stored by the seller. Money also rushed into gold exchange-traded funds (ETFs). Their assets hit 184bn rupees ($2.5bn) in December, a 30% rise in a year.Still, only a sliver of the population, mostly well-off urban types and millennials, invest in complex financial products. A large part of India’s demand for physical gold comes from rural areas, where it seems in no danger of losing its lustre. Those in far-flung villages don’t always have a bank account or a smartphone, making it hard to buy gold online. Nor could they easily show off digital metal to the neighbours or lend their daughter an ETF to wear on her big day. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Karat and stick” More

A worker watches as aluminum ingots pass along a conveyor belt after cooling in the foundry at the Krasnoyarsk aluminum smelter, operated by United Co. Rusal, in Krasnoyarsk, Russia.
Andrey Rudakov | Bloomberg | Getty Images

Commodities prices surged across the board Thursday amid fears of a supply disruption after Russia invaded Ukraine.
Russia is a key producer and exporter of not just energy, but metals and grains, too. Markets were already tight ahead of the invasion, meaning there’s little ability to absorb any output cuts.

“With base metals inventories already running extremely low, there is very little additional cushion for further supply disruptions — either from Russia directly or via higher-for-longer gas and power prices,” JPMorgan said in a note to clients.
Aluminum prices jumped more than 3% to hit a record high of $3,450 per ton on the London Metal Exchange. Nickel is now trading at the highest level in more than a decade: around $25,000 per ton.
Platinum jumped more than 2%, while palladium surged more than 6%.
Russia is a key producer of all four metals. The country supplies 35% of the world’s palladium and 10% of world platinum, according to data from Cru. Aluminum, nickel, and crude steel production stands at 6%, 5% and 4%, respectively.
“[A]luminum and nickel are making further gains amid fears that these two base metals could suffer supply outages from Russia as sanctions are imposed and counteraction is taken,” Commerzbank said Thursday in a note to clients.

Wheat prices jumped to the highest level in more than nine years, while corn futures also advanced.
Oil surged more than 8%, breaking above $100 per barrel for the first time since 2014. West Texas Intermediate crude futures, the U.S. oil benchmark, traded as high as $100.54 per barrel. Brent crude, the international benchmark, traded above $105.
“Though there have been no physical supply disruptions yet, there are serious concerns that Russia could move to restrict commodity exports in response to US sanctions,” RBC said Thursday.
“With the notable exception of the Nord Stream 2 pipeline project, which has already been halted, the White House has gone to great lengths to convey that it will not target the Russian energy sector and exacerbate an already tight supply situation,” the firm added.
Natural gas futures jumped 4.6% to trade at $4.835 per million British thermal units.
The move in Europe was far more extreme, with prices surging more than 30%. Russia supplies around one third of Europe’s natural gas.

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Check out the companies making headlines before the bell:
Live Nation (LYV) – The live event producer’s shares jumped 5.4% in a down market after reporting better-than-expected quarterly revenue and saying it has already sold 45 million tickets for 2022 events even as ticket prices rise substantially.

SeaWorld Entertainment (SEAS) – The theme park operator earned 92 cents per share for its latest quarter, well above the 29 cent consensus estimate. Revenue came in above forecasts, more than doubling a year ago, with park visitors spending more per person than they had prior to the pandemic.
Gannett (GCI) – The USA Today publisher’s shares tumbled 13.6% in the premarket after it posted a wider-than-expected loss for its latest quarter and revenue below estimates. Gannett also said it expects revenue to fall this year, although it still expects to be profitable.
Alibaba (BABA) – The China-based e-commerce giant fell 2.5% in premarket trading after it reported its slowest-ever growth in quarterly revenue since going public in 2014. Sales fell below analyst forecasts as competition intensified. However, its quarterly earnings beat estimates.
Moderna (MRNA) – The drugmaker reported quarterly earnings of $11.29 per share, beating the $9.90 consensus estimate, and revenue also beat forecasts. Moderna also raised its full-year Covid-19 vaccine sales forecast and announced a $3 billion share repurchase program.
Wayfair (W) – The home furnishings retailer slid 9.5% in the premarket after posting a wider-than-expected quarterly loss. Wayfair’s results were pressured by a double-digit decline in international sales.

Norwegian Cruise Line (NCLH) – The cruise line operator’s shares fell 7% in premarket trading after reporting a quarterly loss that was wider than anticipated, and revenue that missed estimates as well. It’s among travel stocks under pressure this morning, stemming in large part from Russia’s invasion of Ukraine.
Papa John’s Pizza (PZZA) – The pizza chain reported better-than-expected profit and revenue for its latest quarter, as profit margins improved even in the face of increased costs. Papa John’s did not provide 2022 guidance due to uncertainties related to Covid-19.
Booking Holdings (BKNG) – Booking Holdings reported adjusted quarterly earnings of $15.83 per share, well above the $13.64 consensus estimate, with the travel services company’s revenue also topping Wall Street forecasts. The company said it has seen meaningful improvement in current quarter bookings, but said there will be periods this year when Covid-19 negatively impacts travel. Shares fell 7.6% in the premarket amid weakness in travel stocks.
Hertz Global (HTZ) – Hertz beat estimates by 15 cents with an adjusted quarterly profit of 91 cents per share, though the car rental company’s revenue fell slightly short of analyst projections. Demand for rental cars remained strong during the quarter, although Hertz is still experiencing post-bankruptcy restructuring expenses. Hertz fell 8.4% in the premarket amid an overall drop in travel stocks.
EBay (EBAY) – EBay came in 6 cents above estimates with quarterly earnings of $1.05 per share, while the e-commerce company’s revenue was in line with forecasts. However, the stock is under pressure after eBay forecast weaker-than-expected current quarter results. EBay lost 8.4% in premarket action.

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Russia’s President Vladimir Putin is seen in his office in the Novo-Ogaryovo residence during a bilateral meeting with China’s President Xi Jinping via a video call in Dec. 2021.
Mikhail Metzel | Tass | Getty Images

BEIJING — China’s Foreign Ministry spokesperson refused to categorize Russia’s attack as an “invasion” during a press conference Thursday.
Russian President Vladimir Putin announced an attack on Ukraine earlier in the day, and explosions in Kyiv and other cities in Ukraine followed. Ukraine’s military claimed to be engaged in fighting within its borders, and Ukraine President Volodimyr Zelenskyy described the violence as an invasion to destroy the country.

Within hours, leaders from the United States, Germany, the United Kingdom and beyond condemned the Russian attack.
China’s Assistant Foreign Minister Hua Chunying was asked by reporters several times whether she would call Russia’s attacks an invasion but she repeatedly avoided giving a yes or no answer.
In response to one reporter, Hua appeared to express frustration at the question and said, “The U.S. has been fueling the flame, fanning up the flame, how do they want to put out the fire?”
That’s according to an official translation of her Mandarin-language remarks.
Hua said Russia was an “independent major country” that could take its own actions. She referred repeatedly to Russia’s government statements on Ukraine, such as a claim from Moscow’s defense ministry that Russian armed forces do not strike Ukrainian cities.

“China is closely following the development of the situation. What you are seeing today is not what we have wished to see,” Hua said. “We hope all parties can go back to dialogue and negotiation.”

Earlier in the week, Putin formally recognized the independence of two separatist regions in eastern Ukraine. The U.S. and Europe had attempted to prevent an attack with a series of sanctions on Russian individuals, financial institutions and sovereign debt.
But on Thursday the long-feared Russian invasion of Ukraine began, as explosions were reported in the capital of Kyiv and other cities around the country.
“China is clearly sympathetic to Russian perspectives,” said Tong Zhao, a senior fellow in the Nuclear Policy Program at the Carnegie Endowment for International Peace, based in Beijing.
“China thinks that it’s the NATO expansion and other threats from the U.S. and NATO” that ultimately prompted Russia to defend “its legitimate interests,” he said. “In other words, I think China feels Russia feels it is forced to do what it is doing.”

“Because Russia is now receiving wide international condemnation and criticism I think China wants to avoid being seen as part of this axis,” Zhao said.
But “when it comes to public statements China has been very careful,” he said. “It’s hard for China to openly support this Russian behavior given this implications for China’s own security and China’s relationship with Taiwan.”
Beijing has repeatedly declared it intends to reunify with Taiwan. The island off the coast of mainland China is democratically self-governed but claimed by the People’s Republic of China.
As tensions brewed earlier in the week, China’s Foreign Minister Wang Yi and U.S. Secretary of State Antony Blinken discussed Ukraine in a phone call Tuesday, according to official statements from both the U.S. and China.
The call followed the closing of the Beijing Winter Olympic Games on Sunday. Just ahead of the opening ceremony in early February, Putin met with Chinese President Xi Jinping in Beijing.

‘No limits’ on cooperation with Russia

After the meeting, the two leaders issued a lengthy statement that did not mention Ukraine by name, but opposed “further enlargement” of the North Atlantic Treaty Organization and said there were “no limits” or “forbidden” areas of cooperation between Russia and China.
Zhao said China is unlikely to make significant changes to its position on Russia but will distance itself from a situation that experts in China previously misread in an environment of tight information control.
Even as recently as Tuesday evening Beijing time, Wang Jisi, president of the Institute of International and Strategic Studies at Peking University, said, “China’s observation of this situation is that Russia’s military action is probably not that imminent as the Americans’ [observation].”
Wang was speaking during a rare trip to the U.S., as part of a livestreamed conversation with Washington, D.C.,-based Center for Strategic and International Studies China Business and Economics Trustee Chair Scott Kennedy.
“I think strategically China is moving closer to Russia, and China-U.S. relations are deteriorating,” Wang said. “but it could be a crucial moment for the three countries to readjust their relationship with each other.”

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