Economy

Emerging market currencies have fallen by their most since the early stages of the pandemic as a “toxic” mix of rising US interest rates and slowing Chinese growth dims the outlook for developing economies around the world.An MSCI gauge of emerging market currencies has tumbled by more than 4 per cent since early April as the Federal Reserve embarks on an aggressive tightening of monetary policy in a bid to rein in high inflation, boosting the US dollar while battering stocks and bonds. Draconian coronavirus lockdowns in China have piled on further pressure by threatening a crucial source of demand for emerging economies.The Chinese renminbi fell to its weakest level against the dollar in more than 18 months on Monday after data showed the country’s exports grew at the slowest pace in two years last month, spurring a further bout of selling across emerging market currencies.“We have had this cooling down of Chinese demand coming at a time when the Fed is hiking interest rates and inflation is still pushing higher,” said Cristian Maggio, head of emerging markets portfolio strategy at TD Securities. “As if that weren’t enough we still have the risks related to the war in Ukraine. It’s a very toxic combination.”Rising US interest rates make emerging markets relatively less attractive to investors, prompting many to pull their money out of riskier economies and shift it to the relative safety of the American financial system. Even so, currencies in the emerging world had mostly shrugged off the prospect of tighter Fed policy until a month ago, helped by rate rises from emerging market central banks facing their own inflation problems last year.Russia’s invasion of Ukraine in February, which propelled the price of goods from oil to wheat higher, also bolstered currencies of commodity-exporting countries including Brazil and South Africa.

“EM has had the tailwind of higher rates and higher commodities,” said Polina Kurdyavko, head of emerging market debt at BlueBay Asset Management. “The question was always how long that would last.”But a more aggressive Fed, which last week increased interest rates by half a percentage point for the first time since 2000, has sparked a renewed sell-off in risky assets such as stocks while sending emerging market currencies lower. Commodity-linked currencies including the Brazilian real and the South African rand have given up part of their earlier gains, while further pain has been heaped on commodity importers such as India, where the central bank was reported to be intervening in markets to support the level of the rupee on Monday.“A lot of this pressure is coming from the Fed, and it isn’t really specific to EM,” said Uday Patnaik, head of emerging market debt at Legal & General Investment Management. “But right now you have a tightening of financial conditions everywhere, and EM can’t escape that.” More

The writer is chief executive and chief investment officer of Richard Bernstein AdvisorsFormer NFL coach Bill Parcells once famously said, “You are what your record says you are.” A team’s coach might try to rationalise a losing record by highlighting good planning, unfortunate injuries, or players’ small miscues but the stark reality is a team with a losing record is a poor one.The Federal Reserve claims to be fighting inflation, but before one proclaims the central bank “hawkish”, it seems appropriate to paraphrase Parcells: you are what your real fed funds rate says you are.The real fed funds rate (ie the difference between the target rate for the central bank and inflation) has historically been a reliable gauge of the monetary policy. When the real fed funds rate is positive, interest rates are high enough to slow nominal growth. But when the real fed funds rate is negative, it suggests the Fed is trying to stoke the economy.Every US recession in the past 50 years has been preceded by a positive real fed funds rate. And the Fed correctly kept the real funds rate negative during most of the period after the financial crisis because the fall-off in bank lending made deflation a bigger risk than inflation.Despite the fact that inflation is at a 40-year high by virtually any measure, the real fed funds rate is now negative to a degree that is far beyond historic averages. Measured using the consumer price index, the real fed funds rate is negative 7.5 per cent versus the 50-year average of 1 per cent. The real funds rate was more than 10 per cent at the peak of the 1980s inflation-fighting Volcker regime.The US and global economies have meaningfully changed in 40 years and Volcker’s extraordinary monetary tightening may not be warranted today. But one should seriously question whether the current real fed funds rate will slow the economy let alone curtail inflation.Some economists defend the Fed’s timid actions by suggesting inflation will cool once current supply chain bottlenecks subside. However, supply disruptions have been the root cause of the US’s worst bouts of inflation. The oil embargoes of 1973-74 and 1979 fostered a full-blown wage and price spiral. Importantly, today’s supply disruptions have already lasted longer than the 1973-74 and 1979 oil embargoes combined and supply chains still remain snarled. It is remarkable how investors, and the Fed for that matter, are playing down one of the most significant economic events in US history. Regardless of whether supply is constrained or demand is too strong, inflation simply reflects demand greater than supply for an extended period of time. The lesson of the Volcker Fed was that the central bank has limited ability to increase the supply of goods or labour, so the only way it can stymie inflation is to raise interest rates enough to destroy demand and force a recession.Despite history, the current Fed believes it can engineer a so-called “soft landing” — ie inflation returning to more benign levels without a recession. The Fed’s optimism has spurred discussion whether a recession will occur or not.That current hard versus soft landing debate though seems a false dichotomy. A third outcome might be that the Fed does not act vigorously enough to force any cooling of the nominal economy and inflation lasts longer than the current consensus.The markets seem to be considering this third option. The three-month to 10-year yield curve is the steepest in seven years, with investors demanding more returns for holding longer-term debt. Such a steepening during a tightening of monetary policy suggest the Fed is losing, not gaining, inflation-fighting credibility.The combination of a timid Fed, substantial inflation, and investors’ general underweighting of traditional pro-inflation assets seems to present an investment opportunity.Although investors have somewhat gravitated to traditional hedges such as inflation-protected Treasuries and Real Estate Investment Trusts, investors remain broadly underweight assets that benefit the most from inflation: energy, materials, and industrial stocks, lower-quality credits, commodities and commodity-related countries, gold, and real assets such as timberland, farmland, and trusts that offer income from royalties.The Fed wants to be viewed as a conscientious inflation fighter, but the extremely negative real fed funds rate says otherwise. Despite the Fed’s jawboning, they are what their real fed funds rate says they are. More

Every January (pandemic excepted), journalists from the international media make their way by plane and train to the normally nondescript and inconveniently located Swiss Alpine town of Davos for a gathering of the global elite.They come mostly not to attend the public sessions with figureheads of business, politics and civil society but for the franker, closed-door discussions to which a select few are invited, and for the chance to collar delegates in the corridors, for a chat, coffee or, occasionally, meal.Their motivations are not unlike those of the full-price ticket-holding titans themselves, many of whose organisations pay hundreds of thousands of dollars for the privilege and swoop in by private jet, helicopter and chauffeured limousine.Peter Goodman, global economics correspondent of The New York Times, is a regular at Davos. And his experiences spark the lively onslaught of his book on the archetypal attendee at these übersummits: Davos Man.

Over 400-plus pages, he expresses righteous — and largely justified — indignation at contemporary capitalism, from price gouging, anti-competitive behaviour, and cosy corporate lobbying to the failure of trickle-down economics, the rise of international tax avoidance, growing inequality, and the pain of public sector austerity.He swipes at the aggressive investments of Stephen Schwarzman’s Blackstone private equity group, booking soaring profits on housing developments while millions struggle to pay rent or buy; or investing in private healthcare operators that spring costly additional “surprise billing” on patients and were slow, in the pandemic, to restrict fee-generating non-Covid medical tests despite the risks of infection.He attacks Larry Fink’s giant BlackRock fund management group, which berates other businesses for failing to practise responsible capitalism while resisting debt write-offs for overburdened low- and middle-income countries; and reaps commissions on green-friendly funds despite fierce debates about the ambiguous value of such environmental, social and governance filters.Then, there is Marc Benioff at Salesforce, who argues for social justice and stakeholder capitalism while minimising his corporate tax bill. And Jamie Dimon, head of JPMorgan Chase, who lobbied for tax cuts under Donald Trump while drawing pay of $31mn in 2018 — a year when Wall Street’s collective bonuses were more than triple the total earnings of every US full-time minimum-wage earner.And there is Jeff Bezos at Amazon, who, claims Goodman, undermines high street retailers and rival online sales outlets alike, imposes low wages and aggressive management practices on his staff and is paid largely in swelling stock, which he uses to help fund his carbon-consuming trips into space.Goodman rightly raises concerns over the injustice of the concentration of wealth among billionaires at the expense of the vast majority of the world’s population, and is scathing of claims that their modest philanthropy is somehow better than helping society through paying taxes channelled via democratically accountable governments.Some of his best reporting describes the pain of the underdogs, from impoverished workers in the Gulf to non-unionised warehouse staff in the US, and the unemployed victims of “sunset” manufacturing and mining companies whipped into anti-immigrant fervour by populist politicians.

But his book has two limitations. The first is his obsession with Davos as a common thread, as though the World Economic Forum had a uniquely powerful network in its own right, and was the only place where elites with shared values conduct negotiations to further their interests.He tries to weave a common Davos connection between the fallout from Brexit, the 2008 financial crisis and the coronavirus pandemic across very different countries with varied health systems, business leaders and politicians.The reality is that many of the egregious practices he describes existed in different forms long before the forum came into being half a century ago; some of the most extreme practitioners have never been to Davos; many of those who do attend have very divergent views; and much of any dealmaking that takes place is as frequent elsewhere, if not more so.Goodman takes a few shots at the management style and financial interests of WEF founder Klaus Schwab. Yet there is little reporting on backroom deals during the après-ski or evidence of initiatives, good or bad, that truly took off in and because of the Alpine gathering.The second gap in Goodman’s thesis is the limited exploration of alternatives. He touches on some interesting if familiar alternative models to Davos Man’s supposedly shared vision, such as labour co-operatives and universal basic income. But neither is analysed in sufficient detail to draw any firm conclusions.Nor is there much analysis of countries that have introduced higher-tax systems, imposed tougher regulations on companies and succeeded in fostering shared wealth creation and human wellbeing, such as in post-1945 Scandinavia. Davos may have failed to deliver a kinder form of capitalism, but its role in fostering the uglier current alternative is more modest than Goodman suggests. Davos Man: How the Billionaires Devoured the World by Peter Goodman, Custom House, £20This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment More

SINGAPORE (Reuters) – Asian shares tumbled to their lowest in nearly two years on Tuesday as investors shed riskier assets on worries about higher interest rates and their impact on economic growth, while the dollar held near 20-year highs.MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.8%, falling for a seventh straight session and extending declines to 17% so far this year.Across Asia, share indexes were a sea of red. The Nikkei lost 0.9%, Australian shares shed 2.5% and Korean stocks lost 2%.S&P 500 stock futures and Dow Jones futures both fell 0.5% and Nasdaq futures were down 0.6%.”The idea of a benign and gentle tightening cycle has evaporated,” ANZ analysts said in a report.”The reality is that the Fed cannot control the supply side of the economy in the short-run, so as long as key indicators like the labour force participation rate stay low and Chinese exports slow, the risk to inflation, and therefore interest rates, lies to the upside,” ANZ said.Central banks in the United States, Britain and Australia raised interest rates last week and investors girded for more tightening as policymakers fight soaring inflation.Overnight, U.S. stocks extended Friday’s bruising sell-off as investors rushed to protect themselves against the prospect of a weakening economy. [.N]Oil prices ticked lower on Tuesday on demand worries as coronavirus lockdowns in China, the top oil importer, continued. Brent crude slipped 0.5% to $105.4 a barrel after falling 5.7% on Monday. More

TOKYO (Reuters) – Japan’s household spending fell in March for the first time in three months, though the drop was smaller than expected, as consumers remained wary of rising living costs despite some easing of COVID-19 curbs.Household spending declined 2.3% in March from a year earlier, government data showed on Tuesday, slower than Reuters’ median market estimate for a 2.8% drop and following 1.1% growth in the previous month.On a seasonally-adjusted, month-on-month basis, spending rose 4.1% in March, stronger than the forecast 2.6% growth.Japan’s consumer inflation is at a multi-year-high, fanned by the war in Ukraine and the yen’s rapid decline to 20-year-lows.In March, Japanese real wages fell for the first time in three months as inflation outstripped steady nominal wage growth.Economists expect the world’s third-largest economy to have contracted an annualised 0.7% in the January-March quarter, followed by a 5.1% rebound in April-June, according to the latest Reuters poll. More

UK retail sales fell in April as shoppers tightened their belts in response to the cost of living crisis, according to new industry data.Figures compiled by advisory services firm KPMG with the British Retail Consortium, an industry body, showed that retail sales fell at an annual rate of 0.3 per cent in April, the first decline in 15 months and down from a 3.1 per cent expansion the previous month.BRC chief executive Helen Dickinson said that “the rising cost of living has crushed consumer confidence and put the brakes on consumer spending”.She added that big-ticket items had been hit hardest, as consumers have reined in spending on furniture, electricals and other homeware. Spending on these items was also hit by delays to imported goods, because of supply chain disruption and Chinese lockdowns. The annual comparison in April was dragged down by the reopening of many shops last year but also boosted by rising prices as BRC data is not adjusted for inflation.Given that inflation is running at the highest pace in 30 years, “the small drop in sales masked a much larger drop in volumes once inflation is accounted for”, the BRC said.

Compared with April 2019, before the pandemic, retail sales were up 3.9 per cent, a sharp slowdown from the 5.4 per cent expansion in the previous month and the lowest figure this year.Official data showed that retail sales contracted in February and March as the cost of living crisis hit household incomes. The latest figures are fuelling economists’ concerns of a further slowdown in economic growth in April and the rest of the year.Economists polled by Reuters expect the UK economy to have barely changed in March, while last week the Bank of England warned of the risk of recession over the next two years. Consumer spending data tracked by Barclaycard, the payments company, which monitors nearly half of all UK credit and debit card transactions, also show weakening growth in April in many sectors despite its figures also not being adjusted for inflation. Spending growth was down for takeaway food, bars, pubs and clubs and for digital content subscriptions, such as Netflix and Amazon Prime. However, both sets of data also reported some sectors doing better thanks to the reopening of international travel, the improved weather and Queen Elizabeth II’s forthcoming platinum jubilee.Spending on clothing rose according to both sets of data, while the BRC also noted that garden goods saw stronger sales.Barclaycard reported that spending on travel agents and airlines recorded significant improvements, declining just 3.5 per cent and 9.9 per cent, respectively, compared with April 2019, up strongly from March’s contractions of 10.7 per cent and 12 per cent.Spending on hotels, resorts and accommodation also reported the fastest growth since September last year.But Paul Martin, UK head of retail at KPMG, said that overall “the retail sector has a bumpy time ahead as stores face spiralling cost pressures from all directions”.

Video: How seafood restaurants are fighting inflation More

WASHINGTON/TOKYO (Reuters) -President Joe Biden’s visit to Japan this month is expected to coincide with the formal launch of a new U.S. economic strategy for the Indo-Pacific, even as China seeks “very aggressively” to fill a void since Washington quit a regional trade pact, Tokyo’s ambassador to the United States said on Monday.Ambassador Koji Tomita told an event hosted by Washington’s Center for Strategic and International Studies that Japan and the United States had been working on the details of the Indo-Pacific Economic Framework (IPEF), which, he said, needed to strike a balance between inclusivity and high standards.Asian countries are keen to boost ties with the United States, but have been frustrated by its delay in detailing plans for economic engagement with the region since former President Donald Trump quit a regional trade pact in 2017.Biden, who is to visit South Korea and Japan from May 20 to May 24, announced the plan for IPEF last year. In announcing its strategy for the Indo-Pacific region in February, the administration said the plan was to launch IPEF in early 2022.Tomita said Biden’s visit would send a powerful signal that Washington remains focused on the Indo-Pacific in spite of the war in Ukraine. “But this is not just a message. I think the visit will establish in very strong terms that Japan and the United States jointly are ready to play a leadership role in the economic and social development of the broader Indo-Pacific region,” he said.Tomita noted that Biden’s visit would include a summit meeting of the Quad grouping of the United States, Japan, Australia and India, an important vehicle for that purpose.”Also, I’m expecting the visit will also coincide with the formal launch of the Indo-Pacific Economic Framework initiative by the United States. And we are now trying to flesh out the ideas to be contained in this initiative,” he said.Biden is due to host Southeast Asian leaders at a special summit in Washington on Thursday and Friday, but an Asian diplomat said IPEF was not on the formal agenda as most ASEAN economies would not be among the initial signatories.The diplomat said at least six countries were likely to sign up initially with the United States to negotiate agreements on a range of common standards. These were Australia, Japan, New Zealand, South Korea and ASEAN members the Philippines and Singapore. Analysts say Washington was particularly keen to get Vietnam and Indonesia aboard too, but they have had issues about agreeing to U.S. standards on cross-border data flows.Tomita said the U.S. withdrawal from what is now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was a setback and China was “very aggressively seeking to fill this void.””Whenever you do any form of regional economic forum there is a trade-off between inclusiveness and high standards,” he said, referring to IPEF. “Of course, we need both, but we have to strike the right balance between these two requirements.”The Biden administration has ignored calls for a return to CPTPP because of concerns about the effect this could have on U.S. jobs and has frustrated smaller Asian countries by its unwillingness to offer greater market access they seek via IPEF. The U.S. ambassador to Japan, Rahm Emanuel, told the same forum IPEF needed to be inclusive, but also have high enough standards that it would not be “a race to the bottom economically.” More

(Reuters) – Global insurers are expected to receive multiple marine insurance claims from ships damaged or lost as the conflict in Ukraine spills over into sea lanes, insurer Allianz (ETR:ALVG) Global Corporate & Specialty (AGCS) said in a report on Tuesday.Two seafarers have been killed and six merchant vessels hit by projectiles – sinking two of them – around Ukraine’s coast since the start of Russia’s invasion of its neighbour on Feb. 24.London marine insurers have deemed the Black Sea and Sea of Azov high risk areas, pushing the cost of insuring ships in the region to record levels with an additional premium added to annual war cover for every voyage.In its annual Safety & Shipping Review, Allianz group’s leading subsidiary AGCS said insurers could also face claims arising from vessels and cargo blocked or trapped in Ukrainian ports and coastal waters as Russia’s navy controls access points.”The insurance industry is likely to see a number of claims under specialist war policies from vessels damaged or lost to sea mines, rocket attacks and bombings in conflict zones,” said Justus Heinrich with AGCS. Moscow has called its action in Ukraine a “special operation” and its efforts to create a maritime corridor have been rebuffed with calls for a U.N.-led channel to allow dozens of ships and hundreds of seafarers to leave the area without risk of being hit. In a separate report last month, risk modelling company PCS said industry-wide insured marine losses from the conflict could range from $3-6 billion, with $5 billion a working estimate.An expanded ban on Russian oil under sanctions imposed on Moscow could raise the cost and availability of bunker fuel, AGCS said. “Longer term, we may see a shortage of bunker fuel with more and more vessels having to turn to non-compliant or substandard fuels, which could result in machinery breakdown claims in the future,” AGCS’ Heinrich said. The study, which analysed reported shipping losses and casualties for vessels over 100 gross tons, said 54 ships were lost globally in 2021, compared with 65 a year earlier and represented a 57% decline over the past 10 years.”Such progress reflects the increased focus on safety measures over time through training and safety programs, improved ship design, technology and regulation,” AGCS said. More