Economy

The world’s largest carmakers have warned supply chain disruptions and higher raw material prices threaten the rollout of electric vehicles, even as demand for battery-powered models vastly exceeds manufacturers’ current production capacities.Speaking at the Financial Times’ eighth Future of the Car summit this week, Tesla boss Elon Musk cast doubt on his company’s ability to reach its target — put in place just months ago — of delivering 20mn electric cars a year by the end of the decade, calling it an “aspiration, not a promise”. “We may stumble and not reach that goal,” an unusually conservative Musk told the conference. “There are some raw material constraints that we see coming, in lithium production, probably in about three years, and in cathode production,” he added.Musk’s comments were echoed by several other industry leaders at the annual event, in contrast to past summits where executives have announced ever more ambitious electric vehicle targets. In 2021, even as the semiconductor shortage showed few signs of abating, Mercedes-Benz boss Ola Källenius told attendees that his company would go “faster” when it came to phasing out combustion engine models and building electric alternatives.But the tone at the summit this week was markedly more reserved. Not a single leading executive announced higher targets for electric vehicle sales, or battery production. Tesla’s closest competitor, Volkswagen, which has long aimed to overtake its rival in electric vehicle sales by 2025, played down its prospects of reaching that goal, calling it “very, very tight”.“Many people are now, I think, a bit over-optimistic,” said VW chief executive Herbert Diess, referring to the rollout of electric vehicles worldwide.Speaking from the back seat of VW’s latest electric model, an emissions-free version of the 1960s camper van, he added: “We need the energy, we need the charging networks, we need the infrastructure, for sure, we need the cars, but we also need the batteries and the raw materials.”Industry analysts, Diess said, were not taking the “amount of effort which has to go in to make this change happen seriously enough”.The warnings by the top two electric vehicle producers came as consumers’ appetite for battery-powered vehicles continues to exceed the sector’s expectations. After VW, which plans to sell roughly 700,000 electric vehicles in 2022, revealed it has sold out of battery models in the US and Europe for the rest of the year, Mercedes-Benz’s Källenius told the summit that this was “largely true for us as well”. Tesla’s Musk said he thought “zero about demand generation and a lot about production and engineering and supply chain”, adding that he would not rule out buying a mining company to secure the raw materials necessary to ramp up electric vehicle manufacturing.Persistent bottlenecks in the supplies of crucial raw materials for batteries have tempered analysts’ expectations for the electric car industry as a whole. Researchers at Wells Fargo who this week examined the raw material prices for components in a Tesla Model Y found “several ‘surprises’ that challenge the notion of imminent [battery electric vehicle] adoption”.Tesla boss Elon Musk being interviewed at the FT’s Future of the Car summit this week © Em Fitzgerald/FT“The rise of battery raw materials costs has delayed [battery electric vehicle] cost parity to [internal combustion engines] by at least a decade,” the bank warned, referring to the moment at which emissions-free vehicles become as cheap as petrol or diesel equivalents.As a result, Wells Fargo analysts downgraded General Motors and Ford, as the US manufacturers would “likely be forced to sell money-losing compliance [battery electric vehicles]”, to meet ever-stricter regulatory targets. Their assessment was matched by Renault chief executive Luca de Meo, who told the FT conference that supply chain crises meant “the game has changed” and that carmakers “have to play by new rules”, which would see them reliant on the efforts of energy and mining companies.He cautioned that the French group might not achieve cost parity for mid-range models by 2025, and that this could damp demand for electric cars. “We know that the purchasing power [of] people in many regions of the world will not necessarily increase,” said De Meo.At the same time, generous subsidies for purchasers of electric cars in China will be phased out by the end of the year, making it harder for those on low incomes to switch.Stellantis, which owns budget brands such as Dacia, warned that batteries would become scarce in just two or three years’ time, complicating the rollout of affordable electric cars.

“The speed at which everybody is now building manufacturing capacities for batteries is possibly on the edge to be able to support the fast-changing markets in which we are operating,” said Stellantis boss Carlos Tavares.“We are not addressing this transformation on a 360-degree strategic approach,” he added. “Everybody is going to pour EV vehicles on the market. So what’s next? Where is the clean energy? Where is the charging infrastructure? Where are the raw materials?”To help with the commodities crunch, Mercedes’ Källenius called for Europe to mimic the raw materials procurement strategies implemented by China and the US and develop “more bilateral trade agreements . . . beyond maybe the three traditional regions”. The EU, he said, should look at inking deals with mineral-rich countries such as Australia and India as well as South American states, and create closer relationships with “economies that may have some of those raw materials that we need for electrification”.But most executives agreed the industry’s woes would not fade fast.“[This is] totally different from what I used to say one year before, that you know, we are improving, we are getting better, one day we will be perfect,” said Nissan’s chief operating officer Ashwani Gupta.“For me today, the supply chain crisis is the new normal.” More

The rouble is the world’s best-performing currency https://emea1.apps.cp.thomsonreuters.com/Apps/NewsServices/mediaProxy?apiKey=6d416f26-7b24-4f31-beb6-1b5aa0f3fafb&url=http%3A%2F%2Ffingfx.thomsonreuters.com%2Fgfx%2Frngs%2FGLOBAL-CURRENCIES-PERFORMANCE%2F0100301V041%2Findex.html this year, although this is due to artificial support from capital controls Russia imposed to shield its financial sector in late February after sending tens of thousands of troops into Ukraine.The exchange rate is mostly being driven by export-focused companies that have to convert their foreign currency revenues, while demand for forex is limited as imports into Russia have waned amid disruptions in logistics and sweeping Western sanctions.As of 1133 GMT, the rouble had eased 1.4% to 64.17 against the dollar, after earlier touching 62.6250, its strongest mark since early February 2020.President Vladimir Putin on Thursday cited the rouble rally as an example of Russia’s sound performance under sanctions.Against the euro, the rouble shed 2% to 66.67, moving away from 64.9425, which it touched in early trade on the Moscow Exchange. That was its strongest since June 2017. Banks are offering to buy roubles at much weaker levels, however. Russia’s No.1 lender Sberbank offered to sell dollars and euros for 72.59 and 76.41 roubles, respectively.Promsvyazbank analysts said they expected the rouble to return towards 65 to the dollar towards the end of the session as market players close positions going into the weekend.Despite some weakness in the rouble ahead of the weekend, levels of 55-60 roubles to the dollar look achievable in the short-term, said Dmitry Polevoy, head of investment at LockoInvest.Russian stock indexes were mixed.The dollar-denominated RTS index was down 1% at 1,129.0 points, earlier touching its strongest point since Feb. 22 of 1,631.11. The rouble-based MOEX Russian index rose 0.6% to 2,312.0 points.For Russian equities guide seeFor Russian treasury bonds see More

The data compares with a growth of 4.7% in the fourth quarter. On a quarterly basis, the economy contracted by a revised seasonally adjusted 3% for the January-March period.(This story refiles to link to alerts, add dropped % in headline) More

And with jittery investors dumping risk assets en masse, what comes next after a crypto-currency rout is also in focus.Here’s your week ahead in markets from Ira Iosebashvili in New York, Tom Westbrook in Singapore, Elizabeth Howcroft, Sujata Rao and Karin Strohecker in London.1/ HARD OR SOFT LANDING?The Federal Reserve is all but certain to hike interest rates by 50 basis points at upcoming meetings. Upcoming data should show whether hefty tightening will bring a hard or soft landing for the economy. Forecasts for Tuesday’s U.S. retail sales data predict a 0.7% rise in April after a 0.5% monthly increase in March. Signs of how much inflation, which shows only the slightest hints of moderating, is pinching consumers may also be evident in Tuesday’s earnings reports from Walmart (NYSE:WMT), Home Depot (NYSE:HD) and Macy’s.Friday’s existing home sales data could show just how quickly rising mortgage rates are cooling the housing market. The Fed’s determination to contain inflation has fuelled hard landing worries. The S&P 500 is set for its worst year since 2008 — any signs the economy is weathering higher rates would be welcome relief. U.S. retail sales https://fingfx.thomsonreuters.com/gfx/mkt/dwvkryxdypm/Pasted%20image%201652306123735.png 2/CRYPTO CRASHCryptocurrency aficionados and observers alike will be watching for the fallout of a spectacular price collapse.Bitcoin was on track on Friday for a double-digit weekly drop, and headed for a record losing streak. Other cryptocurrencies have also slid with investors shunning risk assets as central banks get aggressive on inflation.Whether so-called stablecoins can maintain their dollar pegs as investor confidence plummets is key. The algorithmic stablecoin TerraUSD broke its peg and has plunged to as low as 30 cents, as its complex balancing mechanism involving another free-floating token stopped working.Others such as Tether, USD Coin and Binance USD are confident they will be spared TerraUSD’s fate because their cryptocurrencies are backed by reserves of dollar-based assets. Those reserves may come under increasing scrutiny as investors assess whether those coins can handle a wave of redemptions. Bitcoin wipes out 2021 gains https://fingfx.thomsonreuters.com/gfx/mkt/znvnemwgapl/Bitcoin.png 3/ TAKING ASIA’S PULSE A data pulse across Asia could re-calibrate the outlook for regional assets. Japan reports growth, trade and inflation data. If they beat expectations, even the world’s most dovish central bank may start considering a more neutral stance — good news for a frail yen. China reports industrial output, retail sales and house prices, probably all glum. China also fixes benchmark rates, though traders see steady as the most likely outcome. And in Australia, wages and jobs figures are out. Its central bank didn’t wait for the data before hiking rates on May 3 and markets suspect further increases are coming. Rates are expected to be near 3% by year-end, any signs to the contrary could prompt an unwind of expectations. Data surprises pave markets’ path to hawkish Aussie rate bets https://fingfx.thomsonreuters.com/gfx/mkt/zdpxogwedvx/Pasted%20image%201651821916831.png 4/ WHAT SPENDING POWER?The consumer is in trouble. Soaring food and fuel prices are eroding disposable incomes and lockdown-era savings that could have been spent on travel and shopping, are dwindling fast. Economists predict COVID curbs will have driven a 6% slump in China’s April retail sales, almost double March falls. U.S. April retail sales are tipped to rise, but as in March, gasoline and food may account for most of the increase. British consumer confidence slumped in March to near the lowest in nearly half a century, research firm GfK said. A cost-of-living squeeze likely deepened shoppers’ gloom in April.No surprise global consumer discretionary shares have tumbled almost a third this year, exceeding a broader equity index fall. Investors have taken note; several say they are no longer banking on the consumer. Savings https://fingfx.thomsonreuters.com/gfx/mkt/jnvweromqvw/Pasted%20image%201652090477948.png 5/ PIPELINES & PAYMENTSPressures on Europe’s gas markets show no sign of abating.Moscow’s sanctions against Gazprom (MCX:GAZP) Germania, in which its gas producer Gazprom ceded ownership, and EuRoPol GAZ SA, owner of the Polish part of the Yamal-Europe gas pipeline, have sent prices higher. A Kremlin decree from May 3 bans Russian entities to make deals with those on the sanctions list.This has hit flows to Europe already diminished after Ukraine declared force majeure and said it will not reopen a key gas transit route from Russia to Europe until Kyiv obtains full control over its pipeline system. And there’s still confusion among EU gas companies over a payment scheme decreed by Moscow in March that the European Commission has said would breach EU sanctions as deadlines approach. Brent crude and gas prices https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnyqlrpq/Brent%20crude%20and%20gas%20prices.PNG (This story refiles to change number on last theme to 5 from 4. No other changes to text) More

BEIJING (Reuters) -New bank lending in China hit the lowest in nearly four and half years in April as the COVID-19 pandemic jolted the economy and weakened credit demand, central bank data showed on Friday, after it pledged to step up support to ward off a sharper slowdown.Chinese banks extended 645.4 billion yuan ($95.14 billion) in new yuan loans in April, down about 80% from March and dipping to the lowest level since December 2017, according to the People’s Bank of China data.The lending missed expectations by a wide margin, as analysts polled by Reuters had predicted new yuan loans would fall to 1.52 trillion yuan in April from 3.13 trillion yuan the previous month and against 1.47 trillion yuan a year earlier.”Lending was much weaker than expected last month as lockdowns weighed on credit demand. This should nudge the PBOC to announce further easing measures soon,” Capital Economics said in a note.”But the central bank continues to signal a relatively restrained approach.”The central said the sharp slowdown in April new loans reflected the impact of the COVID on the real economy.”Enterprises, especially small, medium-sized and micro enterprises, had more operating difficulties, and demand for effective financing decreased significantly,” it said.Household loans, including mortgages contracted by 217 billion yuan in April, versus 753.9 billion yuan in March, while corporate loans dropped to 578.4 billion yuan in April from 2.48 trillion yuan in March, central bank data showed.Full or partial lockdowns to stop the spread of COVID in dozens of Chinese cities, including a city-wide shutdown in the commercial hub of Shanghai, have hit the economy hard.To cushion a sharp slowdown in economic growth, the central bank cut the amount of cash that banks must hold as reserves from April 25, and more modest easing steps are expected.LIMITED ROOM FOR EASINGThe central bank said on Monday it would step up support for the slowing economy, while closely watching domestic inflation and monitoring policy adjustments by developed economies.But analysts say the room to ease policy could be limited by worries it could fuel capital outflows, as the Federal Reserve raises interest rates. Cutting borrowing costs may have only limited impact if consumers and businesses remain locked down.”It is difficult to decide because cutting interest rates is not a direct way to help an economy that has been damaged by lockdowns,” analysts at ING said. “Fiscal measures would be more effective, and there are quite a few of them for small and medium-sized enterprises and individuals.” Broad M2 money supply grew 10.5% from a year earlier, central bank data showed, above estimates of 9.9% forecast in the Reuters poll. M2 grew 9.7% in March from a year ago.Outstanding yuan loans grew 10.9% in April from a year earlier compared with 11.4% growth in March. Analysts had expected 11.4% growth.Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to 10.2% in April from a year earlier and from 10.6% in March.TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.In April, TSF fell to 910.2 billion yuan from 4.65 trillion yuan in March. Analysts polled by Reuters had expected April TSF of 2.15 trillion yuan.($1 = 6.7835 Chinese yuan renminbi) More

TORONTO (Reuters) – As Canada’s economy overheats, the Bank of Canada is likely to be among the first of the major central banks to lift interest rates to a more normal setting even as worries persist about record-high levels of household debt, strategists say.Money markets expect Canada’s central bank to continue to raise rates by half a percentage point at its next two policy meetings, in June and July, after it hiked by that increment last month, its biggest single increase in 22 years.That would lift rates to the bottom of the 2% to 3% range that the central bank estimates to be a neutral setting, or the level at which monetary policy is no longer stimulating the economy.The economy likely expanded at an annualized rate of 5.6% in the first quarter. That’s well ahead of the BoC’s projections and compares with a contraction in the United States and barely any growth in the euro area. “The BoC has the strongest case for already being at neutral of any peer group central bank out there,” said Derek Holt, head of capital markets economics at Scotiabank. Ending monetary stimulus could reduce the risk of inflation becoming embedded in the economy. The move is likely more urgent with economic activity exceeding capacity.Among G7 central bank’s, the Federal Reserve and the Bank of England could also lift rates to neutral in the coming months. The Fed’s estimate of neutral is in line with Canada’s central bank but the BoE’s is much lower at 1.25% to 2.25%.Unlike the Fed, Canada’s central bank does not have a dual mandate targeting employment as well as inflation, nor has it adopted average inflation targeting.”There may be that perception, especially with international investors, that the BoC is perhaps a bit more proactive and less tolerant of high inflation,” said Jimmy Jean, chief economist at Desjardins Group.Canada’s inflation rate hit a 31-year high of 6.7% in March, while jobs have climbed well above pre-pandemic levels and the economy continues to benefit from a surge in commodity prices that has been amplified by the war in Ukraine.Government spending continues to add economic stimulus in Canada, while population growth is raising demand for housing and other services, strategists at TD Economics, including Beata Caranci, said in a note.”This means that the Bank of Canada may face a larger challenge than the Federal Reserve in snuffing out the inflation impulse,” the strategists said. Canada’s economy is likely to be particularly sensitive to higher rates after Canadians borrowed heavily during the pandemic to participate in a red-hot housing market. Still, the BoC says the economy is strong enough to handle further tightening.All the major central banks are “dealing with private debt and housing affordability issues but if anyone can pull off neutral – and beyond – then it’s got to be the BoC,” Scotiabank’s Holt said. More

According to Refinitiv Lipper data, U.S. bond funds faced capital withdrawals for the 18th straight week, amounting to $10.42 billion, nearly twice the $5.9 billion in disposals in the previous week. GRAPHIC – Fund flows: US equities bonds and money market funds https://fingfx.thomsonreuters.com/gfx/mkt/xmvjoyzbbpr/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg The U.S. benchmark 10-year Treasury yield hit a 3-1/2-year high of 3.203% this week on fears over higher inflation levels. U.S. headline consumer prices rose 8.3% in April year-on-year, beating economists’ forecasts for 8.1%, data showed on Wednesday.Investors sold U.S. taxable bond funds worth $7.72 billion, about 95% larger withdrawal from a week ago, while municipal funds suffered outflows of $2.76 billion.U.S. short/intermediate investment-grade funds witnessed net selling of $7.28 billion in the biggest weekly outflow since April 2020. However, U.S. short/intermediate government & treasury funds lured inflows of $2.62 billion. GRAPHIC: U.S. bond funds https://fingfx.thomsonreuters.com/gfx/mkt/znpnemylovl/Fund%20flows%20US%20bond%20funds.jpg Meanwhile, investors offloaded U.S. equity funds worth $8.46 billion in a fifth straight weekly outflow. GRAPHIC: U.S. growth and value funds https://fingfx.thomsonreuters.com/gfx/mkt/movanoxwbpa/Fund%20flows%20US%20growth%20and%20value%20funds.jpg Selling continued in U.S. growth funds for the seventh straight week, amounting to $4.5 billion. Value funds also posted an outflow, worth $1.99 billion, after a week’s inflow.Among sector funds, financials, industrials, materials, and tech lost $1.24 billion, $756 million, $677 million, and $468 million, respectively, in outflows. GRAPHIC: U.S. equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgkrbapb/Fund%20flows%20US%20equity%20sector%20funds.jpg Meanwhile, U.S. money market funds booked net selling of about $7 billion in their first weekly outflow in three weeks. More

LONDON (Reuters) – U.S. stock index futures rebounded ahead of the Wall Street open on Friday, keeping fears of a bear market at bay, though Twitter (NYSE:TWTR) shares slid after Elon Musk put his $44 billion deal for the company temporarily on hold.Markets are becoming anxious about the possibility of recession, with the S&P getting close to a bear market on Thursday, at nearly 20% off its January all-time high. [.N]In an interview late on Thursday, U.S. Federal Reserve Chair Jerome Powell said the battle to control inflation would “include some pain”. Powell repeated his expectation of half-percentage-point interest rate rises at each of the Fed’s next two policy meetings, while pledging that “we’re prepared to do more”.The war in Ukraine has aggravated supply chain disruptions and inflationary pressures already in place after more than two years of the COVID-19 pandemic, but stocks enjoyed a bounce on Friday.”There’s an awful lot of negative sentiment out there, we’re looking at a 40% chance of recession,” said Patrick Spencer, vice chairman of equities at Baird Investment Bank.”A lot of fund managers have cut their equity allocations and raised cash, though we think this is a correction rather than a bear market.”S&P futures jumped 1.09% after the S&P index dropped 0.13% overnight, though the index is still eyeing a sixth straight week of declines.Graphic: S&P 500 set for a sixth straight week of falls- https://fingfx.thomsonreuters.com/gfx/mkt/zdpxoglxgvx/stx1305.PNGTwitter shares fell 17.7% to $37.10 in pre-market trading after Musk suspended his plans to buy the company, saying he was awaiting details in support of calculations showing spam and fake accounts represent less than 5% of users.”This is straight out of the Musk playbook, keeping shareholders on their toes,” said Michael Hewson, chief markets analyst at CMC Markets.MSCI’s world equity index rose 0.34% after hitting its lowest since November 2020 on Thursday, though it was heading for a 4% fall on the week, its sixth straight week of losses.European stocks rallied 1.44% and Britain’s FTSE 100 gained 1.64%.Markets are likely to experience a short-term rebound before resuming the sell-off which has sent Wall Street’s Nasdaq tech index down over 25% since the beginning for of the year, BofA analysts wrote in a weekly strategy note.Investors liquidated global equity funds worth $10.53 billion in the week ended May 11, compared with $1.65 billion of net selling in the previous week, according to Refinitiv Lipper.The U.S. dollar was unchanged at 104.77 against a basket of currencies, but remained close to the previous day’s 20-year highs due to safe-haven demand.Russia has bristled over Finland’s plan to apply for NATO membership, with Sweden potentially following suit. Moscow called Finland’s announcement hostile and threatened retaliation, including unspecified “military-technical” measures.The dollar rose 0.47% to 128.83 yen, while the euro was steady at $1.038, above Thursday’s five-year lows.Headline inflation in the euro zone will fall in the second half of the year but so-called core prices, which strip out food and energy, will keep rising, the European Central Bank’s vice-president Luis de Guindos said on Friday.Cryptocurrency bitcoin also turned higher, cracking through $30,000 after the collapse of TerraUSD, a so-called stablecoin, drove it to a 16-month low of around $25,400 on Thursday.”Some traders may see the sharp fall this month as an opportunity to buy the dip, but given the hugely volatile nature of the coins, the crypto house of cards could tumble further,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV).The moves higher in equities were mirrored in U.S. Treasuries, with the benchmark U.S. 10-year yield edging up to 2.8985% from a close of 2.817% on Thursday.The policy-sensitive 2-year yield was at 2.582%, from a close of 2.522%.German 10-year government bond yields edged up to 0.8870%. MSCI’s broadest index of Asia-Pacific shares outside Japan rallied 1.6% from Thursday’s 22-month closing low. Japan’s Nikkei stock index jumped 2.64%.In China, the blue-chip CSI300 index was up 0.75% and Hong Kong’s Hang Seng rose 2.68%, encouraged by comments from Shanghai’s deputy mayor that the city may be able to start easing some tough COVID restrictions this month.Oil prices were headed for their first weekly loss in three weeks as worries about inflation and China’s COVID lockdowns slowing global growth offset concerns about dwindling supplies from Russia. [O/R]U.S. crude rose 1.99% to $108.10 a barrel, and global benchmark Brent crude was up 1.86% at $109.45 per barrel. Spot gold, which has been under pressure from the soaring dollar, fell 0.3% to a three-month low of $1,806.49 per ounce. [GOL/] More