Economy

Good evening,Could Covid be the undoing of the Chinese economic miracle? Figures released today show that lockdowns to enable President Xi Jinping’s zero-Covid strategy are enacting a significant toll on economic activity.Industrial production, the motor that drove China out of the initial Covid shock in early 2020, dropped 2.9 per cent in April. This ran counter to expectations of a slight increase.Meanwhile, retail sales, the country’s main gauge of consumer activity, slumped 11.1 per cent year on year, compared with forecasts of a 6.6 per cent fall from economists polled by Bloomberg.

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

Today’s data are a stark reminder of the economic damage being done by China’s zero tolerance approach to coronavirus, enacted through citywide lockdowns, mass testing and quarantine centres. Xi has reaffirmed his commitment to the policy as the tool to eradicate Covid ahead of his bid for a third term in power later this year, but it is expected to have deep ramifications, not just for China but for global supply chains.The immediate future looks equally difficult for the world’s second-largest economy and its neighbours. The benchmark coal price for the Asian market was pushed to a record high today because of weak supplies from Australia.High-energy coal shipped from the Australian port of Newcastle was assessed at almost $400 a tonne by Argus, a price reporting agency. That topped the previous high set in March after the invasion of Ukraine raised gas prices, pushing power stations to burn coal to generate electricity instead.Latest newsSweden formally announces Nato applicationLloyd Blankfein warns of ‘very, very high risk’ of US recessionBoris Johnson calls for ‘sensible’ solution to Northern Ireland trade disputeFor up-to-the-minute news updates, visit our live blogNeed to know: the economyThe economic gloom has spread to the EU. Today, Brussels cut its growth forecasts further and lifted its inflation outlook, blaming the energy crisis triggered by Russia’s invasion of Ukraine.Both the EU and euro area are set to expand by 2.7 per cent this year, significantly lower than the previous forecast of 4 per cent. Inflation is now expected to surpass 6 per cent, with some central and eastern European countries likely to see double-digit price rises in 2022.Latest for the UK and EuropeBritish manufacturers are bringing production back to the UK, reversing the “offshoring” trend of recent years because of concerns about how the pandemic and Brexit have disrupted supply chains. Three-quarters of companies have increased the number of their British suppliers in the past two years, according to a survey by Make UK, the manufacturers’ trade group.A key part of the problem for Europe in its effort to wean itself off Russian oil and gas is the existence of infrastructure “pinch points” across the continent. Jonathan Stern, research fellow at the Oxford Institute for Energy Studies, said many projects being reconsidered have been planned for years but rejected as not commercially viable when assessed against cheap Russian gas supplies. That assessment has now changed.Global latestG7 foreign ministers have warned of a global hunger crisis unless Russia lifts its Ukraine blockade. Speaking at the conclusion of a three-day meeting in Germany on Saturday, German foreign minister Annalena Baerbock said some 25mn tonnes of grain were stuck in Ukrainian ports that were being blockaded by Russian forces — “grain that the world urgently needs”.Inflation has returned to haunt Brazilians, triggered by the surge in global food and fuel costs. At 12 per cent, it is now at an almost two-decade high and officials are increasingly concerned that price pressures are becoming entrenched across the economy.Need to know: businessAmerica’s shale oil companies are enjoying a cash bonanza, following months of capital restraint by a sector that suddenly finds itself in demand thanks to the global energy crisis. Operators will generate about $180bn of free cash flow — operating income minus capital and maintenance outflows — this year at current crude prices, according to research company Rystad Energy.McDonald’s has announced that the invasion of Ukraine means it can no longer run outlets in Russia. The Chicago-based company, which operated 850 restaurants in Russia and employed 62,000 people, is looking for a Russian buyer that would retain these staff. It said it expected to book a non-cash charge of $1.2bn to $1.4bn for the exit.Renault has sold its Russian business Avtovaz, which made the Lada, to a state-backed car institute for two roubles. The French company’s exit highlights the meagre options facing businesses trying to leave Russia without huge losses on their investments.Ryanair chief executive Michael O’Leary has warned that the outlook for flying remained fragile and vulnerable to new shocks, as the carrier reported a loss of €355mn for the 12 months to the end of March, down from €1.015bn the year before. O’Leary added the airline would “do very well” over the summer if travel was not disrupted by a new coronavirus variant or the war in Ukraine spreading.City centre shopping malls may at last be evolving into multipurpose hubs for business and leisure as well as shopping, as envisaged by their 20th century creator, Vienna-born architect Victor Gruen. But reinvigorating older centres will require investment, a challenge in a cash-strapped sector that has suffered from brutal value destruction, according to an FT analysis of the property sector.The World of WorkAnger about high bonus payments for executives, often paid on top of hefty salaries, is easy to understand. But now studies have found that the whole system of paying people to hit targets is flawed. This is in large part because a lot of bonus systems are outdated in an age of knowledge work, writes FT columnist Pilita Clark.Male managers in the UK are blocking efforts to improve the gender balance at British companies, according to research by the Chartered Management Institute. Two-thirds of the male respondents in the survey of 1,149 managers said they believed their organisation could successfully manage future challenges without gender-balanced leadership. The survey follows widespread condemnation of sexist remarks directed at Aviva chief executive Amanda Blanc at the company’s AGM last week.Packing up a workspace is a huge task, but one Oxford scientist did just that and moved his team to the Netherlands, in part to be closer to his family after 14 years of working in the UK and partly to avoid the adverse consequences of Brexit for British science.Get the latest worldwide picture with our vaccine trackerAnd finally . . . 

© Eliot Wyatt

The FT has a new columnist, critical communications strategist Rutherford Hall. He kicks off this week by offering some (rather suspect) advice to London-based Russian businessman (don’t on any account say oligarch) Oleg on why building a new swimming pool in the upstairs of his South Kensington mansion might not be the best way to improve his image. Hat tip to the FT’s UK editor-at-large Robert Shrimsley for “recovering” these emails. More

The writer is a senior fellow at Harvard Kennedy School and chief economist at KrollGovernments are spending a lot of time and resources trying to mitigate the soaring cost of energy following Russia’s invasion of Ukraine. But the war has sown the seeds of an even bigger crisis that is not getting nearly the same amount of attention. A global food shortage is pushing food prices to record levels, with economic and political implications for developed countries and a threat of famine and debt distress in the emerging world. Much more must be done.Russia’s invasion turbocharged existing food insecurity. Ukraine and Russia account for over one-tenth of all calories traded globally. They produce 30 per cent of world wheat exports as well as 60 per cent of its sunflower oil. At least 26 countries rely on Russia and/or Ukraine for more than half of their grains. According to the UN Food and Agriculture Organization, the war will leave 20-30 per cent of Ukraine’s farmland unplanted or unharvested for the 2022 season. Grains already harvested are stranded because Ukraine’s ports have been blocked by Russia, the focus of a recent G7 foreign ministers meeting. While Russian farmers can still produce, exports have been hampered by sanctions.Russia, the world’s largest fertiliser exporter, announced an export ban in early March. Exports from Belarus, nominally allied with Russia, have had sanctions imposed on them. China imposed an export ban on fertiliser last summer. There is now a disastrous global fertiliser shortage. Prices have jumped, leading farmers to rotate crops or use fewer nutrients, likely leading to lower yields.Food prices have exploded, up almost 30 per cent on the year in April, according to the FAO food price index. It is a crisis felt most acutely in the developing world. Food purchases account for at least half of total household expenditures in low income countries, and many emerging market governments provide food subsidies. These are getting harder to maintain, as rising borrowing costs limit fiscal space and food prices soar. According to the World Bank, 10mn people are pushed into extreme poverty worldwide for every percentage point increase in food prices. In many emerging markets, food insecurity is already a source of social unrest and geopolitical risk. Rising food and energy prices have sparked protests in Sri Lanka, Tunisia and Peru. Developed economies are exposed as well. Nearly 10mn Britons cut back on food consumption or missed meals in April, and France plans to issue food vouchers to the poorest households. Inflation led by food and energy prices is a US campaign issue that may lead to a change in who controls Congress.Economists Alan Blinder and Jeremy Rudd argue that stagflation in the 1970s was caused by energy and food price spikes. A food insecurity crisis should worry central bankers. Trade restrictions imposed by a number of countries to protect local supplies have a multiplier effect that accelerates food inflation. Export restrictions on Russian sunflower oil prompted Indonesia to ban palm oil exports in April. Last week India imposed a wheat export ban. Global efforts to provide food assistance have historically been awkward and sometimes counterproductive. The US, the world’s largest provider of food aid, requires it to be in the form of American-grown food, rather than cash. And at least half of it must be sent on American-owned ships. As a result, a recently approved food aid bill for African nations will see the US spend $388mn to transport $282mn in food products.Economists and food assistance experts say the world should focus on sending cash and expertise, rather than just food stocks. It is much less expensive and much more efficient to help farmers produce locally, adapting crops to their climate and soil conditions. Food and fertiliser exporters such as the US, Canada, the EU, Argentina and Brazil should agree not to impose trade restrictions and India should remove its ones. The US and EU, along with the UN, should consider ways to get harvested grain out of Ukraine. Though it may be unlikely, China could contribute by dropping its export ban on fertiliser and reducing its stockpiling of corn, rice and wheat.Plans are well under way to help countries make up for the loss of Russian energy exports. And falling demand, as declining pandemic aid slows growth, should also bring energy prices down. But the food crisis will be longer-lasting and affect millions more people. The war will end but climate change will continue to affect food supplies. Global leaders should remember the admonition that you reap what you sow. More

WASHINGTON (Reuters) – The Biden administration is increasingly feeling it has little control over short-term inflation, officials say, and is looking for ways to offset the political risk from price hikes in the months leading up to November’s elections.Data last week showed inflation still at 40-year highs, but slightly off an earlier peak. The economy and Biden’s handling of it are top issues for voters, and lowering the cost of meat, gas and other household staples is a key way Biden and his fellow Democrats could defend control of Congress in November’s midterm elections, strategists say.But any U.S. president’s ability to cut prices in the short run in global markets for products from oil to grains is limited, White House advisers say. Influence over supply chain bottlenecks related to China’s COVID shutdowns and Russia’s invasion of Ukraine, both driving up prices, are even further out of reach, they say.The administration expects inflation to ease further from its recent breakneck pace as the year progresses, the advisers said, but not to a level that would be deemed acceptable.In response, the White House, which until recently depicted the inflation surge as transitory, has developed a three-prong strategy: act as aggressively as it can on prices it thinks it can impact on the margins, stress the role of Russian President Vladimir Putin and the pandemic, and attack Republicans, suggesting their economic policies would be worse.The untested shift in messaging comes after some Democrats told the White House it was too slow to take the political problem of inflation seriously. Democrats say it is too early to tell if the new messaging will sway voters.”There was some over-promising and under-delivering,” said Jason Furman, economics professor at Harvard University and a former top adviser to President Barack Obama. “Now the messaging is more realistic.” But he said it was unclear whether the new messaging would satisfy voters.Political strategists say it is important for President Joe Biden to communicate empathy and action even in the absence of good options as an otherwise divided Republican party unites around attacking the president over “Bidenflation.””They need to communicate that families are struggling but here’s what we’re doing today,” said Democratic pollster Celinda Lake, who added that voters in focus groups were identifying the issue as a critical one for Democrats to address. “Just relentlessly being out there doing something every week, every day on these issues.”Republicans blame Biden’s $1.9 trillion American Rescue Plan and other policies for driving inflation, although prices started to jump before he took office and the phenomenon has been global.EXECUTIVE ORDERS, MESSAGINGFor its part, Biden’s White House has criticized companies for taking home record profits and making stock buybacks while charging high prices. It has also tried to increase competition in industries like meat-packing, partnered with retailers to unsnarl supply chains at ports and railways, and released oil from strategic reserves to try to push down prices.The White House’s strategy ahead of the Nov. 8 elections is to identify and use as many executive actions as possible to provide relief to Americans struggling with high costs.Future actions could stretch from student loan relief to gasoline tax holidays and healthcare subsidies.But some policies could prove to be double-edged swords. Cutting student loans helps the borrowers but increases inflation for the economy as a whole, said Furman.Other potential measures, especially cutting import tariffs, would lower costs a bit but are fraught with political risks of their own and may not meaningfully alter the fundamental inflation dynamics, officials said.What’s off the menu? Immigration reform. Biden proposed a comprehensive reform package in 2021 that would have allowed more workers to fill domestic labor shortages that have raised wages and prices, but legislation has failed to move through Congress.Restrictive immigration policies adopted under the prior administration were retained by Biden, including COVID-19 restrictions. Policy changes kept some 3.4 million additional immigrants from entering the United States from 2016 to 2021, the Kansas City Federal Reserve Bank calculates, contributing to worker shortages.Biden will continue to emphasize the role the Fed plays in controlling prices, officials said. He will also underline his support of the central bank’s move to sharply hike interest rates.He further plans to highlight the inflationary impact of Russia’s blocking of Ukrainian grain exports and what he argues is the necessary cost of isolating Putin through steps such as restricting the use of Russian oil, even though they raise prices for Americans.Meanwhile, Democrats will continue to tell voters that Republicans have no serious policy plans. Republicans have endorsed no detailed recommendations to address inflation, but they support cutting taxes and budget deficits, as well as easing regulations for oil and gas producers. More

“The war is having an impact beyond Ukraine and it’s something that we’re very concerned about,” she said in Warsaw on Monday. “I’m afraid we really have a global crisis on our hands.”On Monday, Wheat jumped by the exchange limit to near a record high after India’s move to restrict exports, exposing just how tight global supplies are amid the conflict in Ukraine. Group of Seven agricultural ministers nations criticized the move for making the world’s crisis worse.Yellen is in Europe to attend the G-7 meeting of finance ministers and central bankers in Germany later this week. She said that officials will release an action plan to address food insecurity. It “will include the ways in which you’re stepping up to provide surge support,” she said.“I’d like to recognize the efforts the Polish government and other neighboring governments are making to help Ukraine develop roots for its agricultural exports, for wheat, for commodities, that global markets desperately need and are very hard to export because of the blockades of Odesa and other ports,” she added.The US has pledged $40 billion in aid for Ukraine and $5 billion for food security “that’s making it’s way through the Senate,” Yellen said. “We want to make sure that the assistance gets to where it’s needed.” More

Meyrick Chapman is the principal of Hedge Analytics and a former portfolio manager at Elliott Management and bond strategist at UBS.It would have been fun to eavesdrop on the European Central Bank’s meeting in April. The eurozone monetary family shindig was probably even more tense than normal. On one side of the room are the inflation-allergic Germans and their (relatively) newfound friends. On the other side those freaking out about the damage higher rates will do to their economies and debt burden. In the end, last month’s press conference suggested the hard-nosed family members won the day. It seems the ECB will soon follow the Federal Reserve and raise interest rates. Christine Lagarde basically said as much last week. The ECB may even start to reduce their holdings of government debt at some point. There was probably some grumbling from some family members. The grumbling has probably increased since. Yields on Italian debt have shot higher and spread to German 10-year bonds has widened a lot. There have been references in bond markets to president Lagarde’s famous quip from March 2020 that the ECB is “not here to close spreads”. Social media is awash with commentators metaphorically rubbing their hands at the prospect of another European sovereign problem emerging just as the ECB’s asset purchase programmes are winding down.Spreads have widened considerably, and this will get worse once the ECB ends QE and starts hiking interest rates. Italian long-term bond yields are now 2 percentage points higher than for 🇩🇪 . This fragility will again put €zone policymakers to the test.Chart @RobinBrooksIIF pic.twitter.com/I1RqGyWNkv— Philipp Heimberger (@heimbergecon) May 9, 2022
But isn’t the lesson of the dysfunctional eurozone family that they always seem to threaten a fight on the front lawn, then end up grudgingly hugging and going back inside together? There’s at least a chance that will be the outcome again this time.No one is pretending that European rates are going as high as those in the US. The entire ECB policy shift seems as much an effort to stop a steep decline in the euro as it is an attempt to rein in inflation. And while rates may rise and the ECB asset purchases may end, there are a few tricks that can be deployed if things get unruly.There’s the ECB’s hotly anticipated ‘crisis management tool’, which is reportedly in the works. So far, the details are a well-guarded secret. Maybe it will resemble something like the OMT scheme — though hopefully without the shame.It is equally possible the tool will rejig existing asset portfolio. The Pandemic Emergency Purchase Programme (PEPP) has purchased nearly €1.7tn of government bonds. Unlike the earlier Asset Purchase Programme (APP), the PEPP guidelines are remarkably flexible. Here are some snippets from the statement announcing it, with FTAV’s emphasis:For the purchases of public sector securities, the benchmark allocation across jurisdictions will continue to be the capital key of the national central banks. At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.And from a subsequent statement:The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary stance.Reinvested securities surely will follow the same permissive allocation as the original PEPP investments.So, it’s possible the ECB may raise interest rates and start QT to unwind asset purchases in some member states (like Germany) while its reinvestment programme continues to buy additional securities of vulnerable member states. It is not often you see a central bank simultaneously ease and tighten policy. Such flexibility has become a hallmark of an ECB that has needed to be creative to keep the family together. You can be sure that if a pandemic can be used to introduce such flexible rules, a European war will present an ideal excuse for creativity. As the Council said when they announced the PEPP in March 2020:To the extent that some self-imposed limits might hamper action that the ECB is required to take in order to fulfil its mandate, the Governing Council will consider revising them to the extent necessary to make its action proportionate to the risks that we face.Moreover, if that all fails and peripheral yields continue to rise, there is always the prospect that domestic investors will ride to the rescue. When Italian 10-year government yields rose above 4 per cent in 2011, Italian investors enthusiastically bought their own debt even as foreigners sold on concerns about Italian fiscal sustainability. When Italian yields fell below 4 per cent in 2014, the domestic buying stopped, and Italian investors started to buy foreign assets for higher returns. Notably, Italy’s net international investment position has swung from a big deficit to a big surplus. With Italian yields rising to over 3 per cent earlier this month, and financial markets everywhere looking risky, it may not be long before domestic investors start to buy Italian bonds again, irrespective of ECB policy. They may be gratified to know that the substantial PEPP reinvestment programme may be persuaded to over-allocate to Italian government bonds if things continue to be challenging. More

Moscow Mayor Sergei Sobyanin said to preserve thousands of jobs Renault (EPA:RENA)’s plant in the city would be used to restart production of the Soviet era Moskvich brand. The Western carmaker most exposed to the Russian market, Renault said on Monday its holding of nearly 67.69% in Avtovaz would be sold to the Russian Central Research and Development Automobile and Engine Institute, called Nami.”The closing of these transactions is not subject to any conditions, and all required approvals have been obtained,” it added.Two sources familiar with the situation told Reuters that Renault Russia and the Avtovaz stake were sold for a symbolic one rouble ($0.016) each. Its 100% shares in Renault Russia will go to the city of Moscow.Renault had valued its Russian assets at 2.2 billion euros ($2.29 billion) last year.”Today, we have taken a difficult but necessary decision, and we are making a responsible choice towards our 45,000 employees in Russia,” the carmaker’s CEO Luca de Meo said.The move preserved the group’s performance and its ability to return to the country in future in a different context, he added. De Meo has been clear about the French carmaker’s desire to return to Russia after the war in Ukraine is resolved and normal relations are eventually restored. The iconic Moskvich, which translates as a native of Moscow, ceased production around two decades ago. But Mayor Sobyanin said Moscow was working with truck maker Kamaz Inc and Russia’s industry and trade ministry to localise as much vehicle component production in Russia as possible.Renault said in March that it would suspend operations at the Moscow plant amid mounting pressure over its continued presence there since the start of the conflict in Ukraine.Renault, 15% owned by the French state, confirmed a non-cash writedown of nearly 2.2 billion to reflect the potential costs of suspending Russian operations.More than 400 companies have withdrawn from Russia since it invaded Ukraine on Feb. 24, leaving behind assets worth billions of dollars.Russia calls its actions a “special operation” to disarm Ukraine and protect it from fascists. Ukraine and the West say the fascist accusation is baseless and the war is an unprovoked act of aggression.($1 = 63.8370 roubles)($1 = 0.9593 euros) More

The rouble is the world’s best-performing currency this year http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html, although this is due to artificial support from capital controls that Russia imposed to shield its financial sector in late February after sending tens of thousands of troops into Ukraine.It was not clear whether President Vladimir Putin’s demand for gas payments in roubles was also supporting the currency.At 1131 GMT, the rouble was 2% stronger against the dollar at 63.21, hovering near its strongest mark since early February 2020 of 62.6250, which it hit on Friday.”The current capital control measures brought the rouble back to pre-pandemic levels,” Rosbank analysts said in a note, forecasting that the rouble would slide to 90 to the dollar by year-end.”In the near future, a new committee on FX market regulation may adjust these restrictions, but until then, the USD/RUB consolidation may stick to the lower bound of the 63.0-70.0 range.”Against the euro, the rouble rose 2.3% to 65.60, staying near its strongest level since June 2017 of 64.9425, which it touched on the Moscow Exchange on Friday.Moscow’s standoff with the West and fears of a new sanctions package to punish Russia for what it calls “a special military operation” in Ukraine are in focus. But their impact is cushioned by mandatory conversion of foreign currency by export-focused companies and by other restrictions.”The rouble firming today may be moderate but the dollar rate could gradually decline to 62,” Promsvyazbank analysts said in a note.Russian stock indexes jumped higher.The dollar-denominated RTS index was up 4.2% at 1,180.1 points. The rouble-based MOEX Russian index rose 2.7% to 2,368.6 points.For Russian equities guide seeFor Russian treasury bonds see More

(Reuters) – Gold prices fell more than 1% to their lowest in 3-1/2 months on Monday as elevated bond yields and a firmer U.S. dollar dampened bullion demand, even as riskier assets dropped after grim China economic data.A stronger dollar makes gold expensive for overseas buyers, while higher Treasury yields raise the opportunity cost of holding zero-yield bullion.Spot gold was down 0.4% to $1,804.01 per ounce as of 1124 GMT, after hitting its lowest since Jan. 31 at $1,786.60 earlier in the session. U.S. gold futures fell 0.3% to $1,802.20.”Spot gold may not stray far from $1,800, suppressed by the might of King Dollar and elevated Treasury yields, while supported by the looming prospects of a recession,” said Han Tan, chief market analyst at Exinity.Gold prices are down over 13% since scaling a near-record peak of $2,069.89 an ounce in March as the U.S. dollar and Treasury yields were bolstered by aggressive rate hike bets. [USD/] [US/]”Having now fallen through the psychologically important threshold of $1,800 an ounce and with the hawkish monetary policy more likely to strengthen than weaken, it is hard to see where gold can now find a short-term foothold,” Rupert Rowling, market analyst at Kinesis Money, said in a note.The U.S. dollar consolidated gains near a two-decade peak while equities, oil prices and riskier currencies took a hit after an unexpectedly weak economic data from China highlighted fears about a slowdown in growth. [MKTS/GLOB]Silver has found itself caught up in the broader sell-off in equities and gold, being punished for being an industrial metal at a time when growth forecasts are being trimmed and for its lack of yield at a time of rising interest rates, Rowling added.Spot silver gained 0.3% to $21.14 per ounce, after slumping to its lowest since July 2020 in the last session.Platinum eased 0.2% to $936.21 and palladium fell 0.8% to $1,928.54. More