Economy

European stocks were subdued on Monday as weak economic data from China further clouded the global growth outlook. Following the longest string of weekly losses for global equities since the 2008 financial crisis, Europe’s regional Stoxx 600 share index fell as much as 0.8 per cent in early dealings, before trimming its losses to trade down 0.1 per cent. Futures contracts tracking Wall Street’s S&P 500 dipped 0.3 per cent, having sustained heavier falls in Asian and early European trading. Contracts on the Nasdaq 100 fell 0.5 per cent, signalling further declines ahead for more speculative tech stocks. The FTSE All World share index has dropped more than 11 per cent since the end of March as soaring inflation has driven central banks to raise interest rates, with investors becoming concerned that large economies are not strong enough to withstand higher borrowing costs. The downward trend for stock markets has been punctuated by short-term rallies, however, as traders hunt for bargains in sold-off sectors. “A big chunk of the global economy is basically contracting,” said Luca Paolini, chief strategist at Pictet Asset Management. “But [stock market] valuations are looking more attractive so there’s always people who will say the worst is behind us, let’s buy the market back.” “It’s a pretty ugly combination of financial conditions tightening into slowing growth,” added Hani Redha, multi-asset portfolio manager at PineBridge Investments. “In the near term the market is ripe for a relief rally,” he said, “but any bounceback is not sustainable, in our view.” Data on Monday showed Chinese retail sales dropped 11.1 per cent in April from the same month last year as a wave of stringent coronavirus lockdowns across the country reduced demand. Industrial production, which analysts had expected to rise slightly, fell 2.9 per cent. Meanwhile, Brussels on Monday cut its growth forecasts further for the euro area and lifted its inflation outlook to reflect the estimated economic impact of an energy crisis triggered by Russia’s invasion of Ukraine.Lloyd Blankfein, senior chair of Goldman Sachs, told CBS News on Sunday there was a “very, very high risk” of a US recession. The world’s largest economy contracted unexpectedly in the first quarter of the year. Consumer price inflation is also running close to a four-decade high. The US Federal Reserve earlier this month raised its main borrowing cost by 0.5 percentage points, while chair Jay Powell said moves of the same size “should be on the table at the next couple of meetings”. European Central Bank president Christine Lagarde also signalled last week the institution was ready to drop its long-held policy of keeping interest rates in the currency bloc below zero. In Asia, mainland China’s CSI 300 share index fell 0.8 per cent, while Hong Kong’s Hang Seng added 0.3 per cent and Tokyo’s Topix traded flat. Brent crude oil dipped 0.6 per cent lower to $110.92 a barrel.The yield on the 10-year US Treasury note, which moves inversely to the price of the benchmark debt security, fell 0.01 percentage points to 2.92 per cent. More

Wheat prices rose by the maximum amount allowed on Monday after India imposed a ban on exports, stoking pressure on food costs as tight global supplies roiled international markets.Futures traded in Chicago rose as much as 5.9 per cent to $12.47 a bushel, their highest level in two months. Wheat prices have risen more than 60 per cent this year, driven up by disruption from Russia’s invasion of Ukraine. The two European countries account for almost a third of the world’s wheat exports.India, the world’s second-biggest wheat producer after China, had filled a gap in markets left by decreased output from Ukraine thanks in part to a bumper harvest of 7mn tonnes last year, even as inclement weather reduced the crops of other big exporters.But after denying it would halt exports, India reversed course over the weekend after domestic inflation surged to the highest level in eight years on the back of rising food prices. New Delhi said it was introducing the ban, with some exceptions, “in order to manage the overall food security of the country and to support the needs of the neighbouring and other vulnerable countries”. “It just exacerbates the food shortage risk, particularly for developing nations and those historically dependent on foodstuffs out of that region,” said Robert Rennie, global head of market strategy at Australian bank Westpac. The sudden shift followed two months of searing heatwaves in India, with temperatures of up to 45C across swaths of the wheat belt. Relief from the annual monsoon season could still be weeks away. Soaring food and fuel prices also prompted the Bank of India to raise interest rates this month for the first time in four years.Tobin Gorey, director of agricultural strategy at Commonwealth Bank of Australia, said the wheat export ban would be a “shape shifter” for global markets.“The trade will likely need to replace at least some Indian wheat in the pipeline,” Gorey said. “We suspect that will create an initial flurry of trading but the market will take some time to assess the details.”

The export ban was announced just days after the US Department of Agriculture forecast that global wheat production would drop for the first time in four years in 2022-23. The UN World Food Programme said this month that the war in Ukraine had exposed the fragility of global supply chains to sudden shocks, with serious consequences for food security.Westpac’s Rennie said the impact of the ban was likely to hit developing markets in Africa and the Middle East the hardest, as the developed world moved to shore up supply.“It’s the humanitarian issues that are developing which, unfortunately, I think we should be more focused on,” he said. More

Carlos Vieira, a carpenter in São Paulo, hoped runaway inflation was consigned to Brazil’s past. Now, with the cost of his materials doubling in just three years, he fears those days are back. “Since I set up the workshop in 1998, I’ve never seen anything like this . . . There have always been ups and downs, but now we’re suffering from this crisis and the one before,” the 57-year-old said, referring to the Ukraine war and the pandemic.At 12 per cent, annual inflation in Brazil is now at an almost two-decade high. Triggered by the surge in global food and fuel costs, officials are increasingly concerned that price pressures are becoming entrenched across the economy.Roberto Campos Neto, central bank governor, told reporters in April that a sharp rise in the cost of items such as clothing and eating out in recent months “came as a big surprise”. Inflation is nowhere near as bad as it was in the 1980s and 1990s, when supermarkets would remark prices twice a day to keep pace with the rising prices. After surging to a record 4,500 per cent in the year to June 1994, measures ranging from the introduction of a new currency, the real, to granting the central bank independence, helped bring price pressures under control.

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But the spectre of Brazilian hyperinflation was never entirely banished. Many contracts — covering everything from rented accommodation to the supply of raw materials — still contain automatic adjustments, a legacy of the times where prices and wages routinely rose by between 30 and 40 per cent a month.Some contracts, such as those for rents as well as telephone and electricity charges, use the alternative measure of wholesale inflation, which at 15 per cent is significantly higher than the consumer price index.The wholesale measure, which is weighted towards producer prices, was above 40 per cent for much of last year, putting pressure on businesses such as Viera’s carpentry workshop. He said his margins had been squeezed by almost a third over the past three years. The prevalence of these inflation-linked contracts is hampering efforts by the Brazilian central bank to bring inflation under control and raises the risk of prices spiralling. Alessandra Ribeiro, economist at Tendências, a consultancy in São Paulo, said: “The battle is that much harder and the central bank has to be more aggressive.”Inflation is nowhere near as bad as it was in the 1980s and 1990s, when supermarkets would remark prices twice a day to keep pace with the rising prices © Julio Pereira/AFP/Getty ImagesBanishing inflation was a battle that, until recently, the central bank seemed to have won. Brazil’s policymakers, who were early adopters of inflation targeting, had won enough credibility to cut the benchmark Selic rate to just 2 per cent in 2020. That trend is now in reverse.The Selic has been raised 10 times since March last year to 12.75 per cent. An 11th rise is expected to take the rate to 13.25 per cent next month. To make matters worse, the central bank’s increases threaten to choke off demand and trigger a recession. Growth is already anaemic and there is a high prospect of a serious bout of stagflation, where inflation soars and output stagnates. Output this year is predicted to grow just 0.7 per cent, according to a central bank survey of market economists. The prediction for next year is barely any better, at just 1 per cent.

Brazil’s government in March hastily cut fuel taxes after lorry drivers staged the latest in a series of protests at rising diesel prices © Filipe Araujo/AFP/Getty Images

Meanwhile, moves by their US counterparts look set to place monetary policymakers in Brazil in a bind where they can do little to put growth back on track. While the real has strengthened against the dollar this year, rate rises from the Federal Reserve in the coming quarters threaten to undermine those gains.In such a climate, cutting rates risks a fall in the currency, raising the cost of imports and leading investors to ditch assets. “At some point central banks [in the region] will have to cut rates,” said Alberto Ramos, head of Latin American economic research at Goldman Sachs in New York. “But some time in 2023 the [Fed] is going to be in full hiking mode. It’s going to be very difficult for those central banks to cut while the Fed is hiking.”While Brazil’s problems are exacerbated by its history of high inflation, they are not unique. Prices are rising fast across emerging markets at an average annual rate of almost 14 per cent, twice that of advanced economies. Argentina’s headline inflation is running at close to 60 per cent a year. The pain is particularly acute for poorer people, who spend a relatively large part of their income on food and are exposed to sharp rises for products such as household fuels used for cooking and heating, which are up by more than 30 per cent in Brazil. Higher energy prices have also sparked unrest. In March, Brazil’s government hastily cut fuel taxes after lorry drivers staged the latest in a series of protests at rising diesel prices, blocking highways with burning tyres. “There is absolutely no doubt that inflation is a tax, and a socially regressive tax, that disproportionately affects low-income households,” said Ramos. “It is a serious problem everywhere in Latin America.” More

HONG KONG (Reuters) – The dollar started the week just off a 20-year high against peers on Monday, as investors sought safety due to fears about global growth while cryptocurrency markets appeared to find some stability after last week’s turmoil.The dollar index was at 104.54, having briefly crossed the 105 level on Friday, its highest since December 2002, after six successive weeks of gains.Investors have flocked to the safe-haven currency on concerns about the U.S. Federal Reserve’s ability to dampen inflation without causing a recession, along with worries about slowing growth arising from the Ukraine crisis and the economic effects of China’s zero-COVID-19 policy.”Broad USD strength is being supported by a mounting global growth concern,” said Barclays (LON:BARC) analysts.They said events to watch this week included U.S. retail and production data due Tuesday, as well as public remarks from several Fed officials.”Focus will be on any potential reiteration/pushback on the notion that 75-basis point rate hikes are off the table for now.” Markets are pricing in 50 basis point hikes at the Fed’s next two meetings, according to CME’s Fedwatch tool, but with the possibility of larger increases.Chinese retail and production data due later on Monday are also top of the agenda.”A weaker growth outlook in China is likely to keep commodity G10 currencies under pressure and the USD supported,” said Barclays. The euro started the week languishing near its lowest level since early 2017, suffering due the strong dollar and because of the European economy’s exposure to the Ukraine conflict.The single currency was at $1.0398 on Monday morning, only just above the $1.0354 level it hit on Thursday, its lowest since early 2017.There are also plenty of speeches from top European Central Bank officials this week for investors to watch. Sterling, which has suffered along with the euro, was at $1.2256 on Monday, having dropped as low as $1.2156 last week, hurt by softer than expected first quarter GDP figures. In the coming week, Britain has labour market data, inflation and consumer confidence data.The Japanese yen was a little softer on Monday morning at 129.43 yen per dollar. Last week it managed its first week of gains since early March, as growth fears meant U.S. Treasury yields paused their march higher.With yields pinned down in Japan, the yen is vulnerable to higher U.S. yields.Crypto markets, which trade around the clock, had a quiet weekend after turmoil last week driven by TerraUSD, a so-called stablecoin, broke its dollar peg.Bitcoin was trading around $31,000 having dropped to $21,400 on Thursday, its lowest since December 2020. More

Belarus and Russia were hit by sanctions after Moscow sent tens of thousands of troops into Ukraine on Feb. 24 from Russian and Belarusian territory in what it called a “special military operation” designed to demilitarise and “denazify” its neighbour.Ukraine and the West say the fascist allegation is baseless and that the war is an unprovoked act of aggression.”Because of the sanctions, almost all of Belarus’s exports to the countries of the European Union and North America have been blocked,” Golovchenko said, according to a transcript of an interview with the Dubai-based Al Arabiya television published by the Belta state news agency. “This … comes to about $16 billion to $18 billion a year.” President Alexander Lukashenko has insisted that Belarus must be involved in negotiations to resolve the conflict in Ukraine, saying also that Belarus had been unfairly labelled “an accomplice of the aggressor”.Belarus was also heavily sanctioned last year following the interception of the Ryanair plane flying between Athens and Vilnius and the arrest of a dissident journalist and his girlfriend after the plane landed. (Reporting in Melbourne by Lidia Kelly; Editing by Stephen Coates) More

The June contract on the most liquid three-year treasury bond futures fell as much as 43 ticks before cutting losses slightly to trade 37 ticks lower at 105.23 at 0020 GMT. “(I may be able to say) after watching the May policy meeting and more data by around July and August,” Bank of Korea Governor Rhee Chang-yong said when asked by reporters if the bank was considering a 50 basis-point inters hike at its May 26 meeting.South Korea’s central bank usually raises or cuts its benchmark interest rate in 25-basis point increments.At their first one-on-one meeting since taking office this month, Rhee and Finance Minister Choo Kyung-ho agreed to boost policy coordination in fighting inflation and financial markets instability, the biggest current risks facing the economy.They also agreed that downside risks to growth in Asia’s fourth-largest economy had increased, a joint statement from the two organisations added.The country’s two most powerful economic policymakers held their first one-on-one meeting on Monday after taking office this month and in a follow-up to their attendance at a meeting on Friday hosted by President Yoon Suk-yeol.The statement did not disclose any further comments on specific asset classes or indicators. More

The government, seeking to use its “Brexit freedoms”, announced this month that it would require regulators to help the City of London to remain a global financial centre after the country left the European Union.The group of 58 economists, including a Nobel Prize winner and former business minister Vince Cable, said making competitiveness an objective could turn regulators into cheerleaders for banks and lead to poor policymaking.It also raised the risk of hurting the real economy as the finance sector sucks in a disproportionate share of talent, they said in an open letter to finance minister Rishi Sunak.”The UK instead needs clear regulatory objectives that promote economy-wide productivity, growth and market integrity, and also protect consumers and taxpayers, advance the fight against climate change and tackle dirty money to protect our collective security,” the letter said.Britain’s financial services minister, John Glen, has said the new competitiveness objective for the Bank of England and the Financial Conduct Authority would be secondary to keeping markets, consumers and companies safe and sound.Banks have sought more focus on competitiveness than proposed, but the government has faced push-back from the BoE which has warned against a return to the “light touch” era that ended with lenders being bailed out during the financial crisis.The signatories of the open letter included Cable, a former leader of the centrist Liberal Democrats, Mick McAteer, a former FCA board member, and Nobel Prize-winning economist Joseph Stiglitz. More

UK employers with gaps in their workforce increasingly plan to train existing staff rather than raise wages to lure new recruits, according to a survey that suggests pay pressures may be easing.About two-thirds of employers expect to have difficulties filling vacancies over the next six months, and one-third expect these difficulties to be severe, the CIPD organisation for HR professionals said in its quarterly labour market outlook, published on Monday.But fewer now think they can solve recruitment problems by offering more money. Among those with hard-to-fill vacancies, only 27 per cent planned to respond by raising wages, compared with 44 per cent who had already done so over the previous six months. In contrast, 37 per cent said they planned to boost the skills of existing employees, while a similar proportion were aiming to improve the availability of flexible working arrangements. Jon Boys, labour market economist at the CIPD, said the research suggested “employers are running out of steam on their ability to increase pay any further” and were increasing their focus on retention of existing staff, because it was increasingly difficult to hire outside. He added: “They are saying that it’s very hard to buy in new skills at the moment . . . they need to inculcate them.”The CIPD’s survey, conducted in April, also found that employers were increasingly unlikely to absorb higher wage bills in their margins, with a growing proportion planning to raise prices.A cooling in wage growth would come as a relief to policymakers at the Bank of England, who warned earlier this month that rapid increases in nominal earnings could make high inflation persist for longer — even though pay is rising much more slowly than prices. But the BoE believes pay pressures are if anything likely to strengthen, after hearing from its agents that some businesses are considering one-off bonuses and mid-year increases in pay settlements.The CIPD’s finding that businesses would resist raising wages to attract new staff was also at odds with evidence from other surveys. Last week, the monthly report from the Recruitment & Employment Confederation showed the proportion of recruiters reporting higher starting salaries remained near record levels in April.

The CIPD acknowledged that pay awards were still running at historically high levels. Among employers planning a pay review over the next 12 months, the median increase in basic pay they anticipated was 3 per cent — the highest since 2012.Even in the public sector, where budgets are tighter, the median pay award expected by employers had risen to 2 per cent, up from 1 per cent in the previous quarter.But Boys said public-sector employers — who were even more keen to hire than their private-sector counterparts, but less able to increase pay and other benefits — could find it “increasingly difficult . . . to compete for talent”.Overall earnings growth in the economy is generally higher than pay awards, because some people win a bigger pay rise through promotion, changing jobs or receiving a bonus. More