Economy

The talks between the companies were in progress, but it was uncertain whether an offer will be made, Philip Morris (NYSE:PM) said in a separate statement. Shares of the company were up 1.6% at $100.53.Swedish Match had a market capitalization of 120.92 billion Swedish krona ($12.04 billion), as of last close, according to Refinitiv data. Philip Morris had a market capitalization of $153.37 billion.Last year, Philip Morris bought asthma inhaler maker Vectura for $1.44 billion as part of its long-term plan to develop smoke-free products and switch to being a “broader healthcare and wellness” company.The U.S. Food and Drug Administration in April issued a long-awaited proposal to ban flavored cigars and menthol cigarettes, which account for more than a third of the industry’s overall market share in the United States.Swedish Match makes snus, a wet snuff product that is banned in all European Union countries except Sweden. The company has grown in the U.S. cigar market in recent years and hopes for similar success there with snus, which faces competition in its home market.The talks between the Marlboro maker and Swedish Match could yield a deal as soon as this week, the Wall Street Journal first reported the news earlier on Monday, citing people familiar with the matter.Swedish Match in March shelved plans to spin off and list its U.S. cigar business.($1 = 10.0472 Swedish crowns) More

The boss of Volkswagen has called for the EU to pursue a negotiated settlement to the war in Ukraine for the sake of the continent’s economy, an intervention that challenges the stance taken by European leaders. “I think we should do the utmost to really stop this war and get back to negotiations and get back to trying to open up the world again,” Herbert Diess told the Financial Times’ Future of the Car summit on Monday. “I think we should not give up on open markets and free trade and I think we should not give up on negotiating and trying to settle.” The comments drew a sharp rebuke from Dmytro Kuleba, Ukraine’s foreign minister. “The best strategy for major German business would be to fully sever business ties with Russia and then call on Russia to stop the war and return to diplomacy,” he told the FT. VW suspended local production and exports to Russia in March.Andrij Melnyk, Ukraine’s ambassador to Berlin, said: “In Kyiv people would prefer the VW CEO to address President Putin personally, a man he knows well and the man who has unleashed this war of destruction against the people of Ukraine.”He added that Diess should “call on the Kremlin to immediately cease combat operations against the civilian population of Ukraine”.Diess spoke as Vladimir Putin reasserted Russian war aims at the showcase annual Victory Day parade in Moscow’s Red Square. In his address, the Russian president claimed the Kremlin’s troops were “fighting on their own land” in the conflict, hinting that he would lay claim to more Ukrainian territory, including lands currently occupied by his forces.Emphasising the difficulty that lies ahead in reaching a negotiated peace, Ukraine’s president Volodymyr Zelensky accused Russia’s leadership of repeating the “horrific crimes of Hitler’s regime” by waging a war of atrocities and land grabs. “This is not a war of two armies,” he said in a video address. “This is a war of two world views, a war waged by barbarians.”Diess’s comments on the need for a settlement come a day after German chancellor Olaf Scholz vowed to continue to supply Ukraine with weapons, adding that “capitulating to brute force” was not an option for Europe. While Scholz’s stance has been publicly supported by German industry, disruptions to supply chains — exacerbated by the war in Ukraine — continue to hurt the likes of Volkswagen, the world’s second-biggest carmaker.

A shortage of wiring harnesses made in the country has forced the company to cut back on production in recent weeks, and VW has sold out of electric models in US and Europe for the year.Diess said if global trade continued to struggle, “Europe will suffer most, and Germany, but I think it will be bad for the whole world”.Germany is debating whether it could endure a sudden end to Russian gas supplies. A new study by an adviser to the government found that Germany’s economy stood to lose about 12 per cent of its annual output if supplies stopped abruptly.Diess, who had previously warned that a drawn-out war would do more damage to Germany and Europe than the Covid-19 pandemic, has sparked criticism for previous comments. In 2019, he apologised after using the phrase “Ebit macht frei”, or “Profits will set you free” — an apparent play on the phrase “Arbeit macht frei”, or “Work will set you free”, which was forged into the gates of the Auschwitz concentration camp. Later that year, he said he was “unaware” of China’s mass detention of Muslims in Xinjiang province. On Monday, Diess also warned that the German group would struggle to overtake Tesla as the world’s biggest maker of electric cars by the company’s target of 2025.“I didn’t expect our main US competitor’s growth to be so fast,” he said. More

Emmanuel Macron has urged the creation of a broad “community” of European democracies to include non-EU members amid calls to reform the way the continent is governed following the Russian invasion of Ukraine.In a speech to the European Parliament on Monday, Macron also joined a push for the rewriting of EU treaties to speed decision-making in the 27-member bloc.Macron, re-elected French president last month, recalled that his predecessor François Mitterrand had proposed such a broad European club as the Soviet Union collapsed in 1989. Mitterrand’s idea “posed a good question and the question remains — how to organise Europe politically in a broader way than the EU,” Macron said in Strasbourg on the anniversary of Robert Schuman’s 1950 declaration on European integration. “It’s our historic obligation to respond to that today and to create what I would call a European political community.”He added: “The European Union, given the level of its integration and ambition, cannot be in the short term the only means of structuring the European continent.”The proposal comes as EU leaders rethink the way the union handles relations with its close neighbours as a result of the war in Ukraine. One of the key questions is how to manage the aspirations of a range of non-EU countries aspiring to join the bloc.The new community would allow European countries adhering to the EU’s “core values” to co-operate on security, energy, transport, infrastructure and the movement of people, the French president said. Joining it, he added, would not prejudice a country’s application for EU membership. Macron said he hoped Ukraine would be formally accepted as a candidate for membership, but countries aspiring to become members are likely to view his idea with suspicion, given frustrations that the union has been stalling their applications. Macron said the new club was needed because would-be EU members such as Ukraine were waiting for years and even decades before they could join.There is also pessimism over the speed with which any of the six countries of the West Balkans — Albania, Bosnia, Kosovo, Montenegro, North Macedonia and Serbia — will become members. Macron suggested the community would not only be open to potential EU members, but also to those that had left — a reference to the post-Brexit UK.The French leader also endorsed the idea of opening up a convention to discuss reforms to EU treaties, echoing a call from the European Parliament and Italian prime minister Mario Draghi last week.“We will have to reform our texts, it’s clear,” Macron said, adding that he wanted the matter discussed by the EU council as early as June. Speaking shortly before Macron, European Commission president Ursula von der Leyen said she welcomed the parliament’s willingness to use its powers to propose a convention. “Let’s work on all of this together, with no taboos, no ideological red lines,” she said.Among the ideas gaining momentum is a demand for the end to unanimous decision-making among EU member states in areas including foreign affairs and security.Unanimity voting in some key areas “simply no longer makes sense if we want to be able to move faster,” Von der Leyen said, adding that Europe should play a greater role in areas such as health and defence.Macron backed the use of qualified majority voting on decisions “for our main public policies”.However a group of 13 member states, including Croatia, the Czech Republic, Denmark, Estonia, Finland, Poland and Romania, in a joint paper on Monday warned against “unconsidered and premature attempts to launch a process towards treaty change”.This, they wrote, “would entail a serious risk of drawing political energy away from the important tasks of finding solutions to the questions to which our citizens expect answers and handling the urgent geopolitical challenges facing Europe”. More

Minneapolis Fed President Neel Kashkari said Monday he’s confident inflation will come back to the central bank’s 2% target.
He said he underestimated how persistent price increases would be, adding rate increases to tame inflation will hurt low-income people.

Minneapolis Federal Reserve President Neel Kashkari said Monday he’s confident inflation will come back to normal, though he added it will take longer than he expected.
Acknowledging that he was on “team transitory” in believing that surging prices wouldn’t last, he said persistent supply-demand imbalances have generated the highest inflation levels in more than 40 years.

While the Fed’s monetary policy tools can help tamp down demand, they can’t do much to get supply to keep up.
“I’m confident we are going to get inflation back down to our 2% target,” he told CNBC’s “Squawk Box” in a live interview. “But I am not yet confident on how much of that burden we’re going to have to carry versus getting help from the supply side.”

Neel Kashkari
Anjali Sundaram | CNBC

His comments come less than a week after the Federal Open Market Committee raised benchmark rates by a half percentage point. The 50 basis point hike was the largest increase in 22 years and sets the stage for a series of similar-sized moves in the months ahead.
Though Kashkari historically has favored lower rates and looser monetary policy, he has voted in favor of the two increases this year as necessary to control spiraling prices. He noted, though, that the burden from tighter policy will fall on those at the lower end of the wage spectrum.
“It’s the lowest-income Americans who are most punished by these climbing prices, and yet your policy tools to tamp down inflation most directly affect those lowest-income Americans as well, either by raising the cost to get a mortgage … or if we have to do so much that the economy were to go into recession,” he said. “It’s their jobs that are most likely put at risk.

“So this is a difficult challenge I think for all of us, but we also know that letting inflation stay at these very high levels, it’s not good for anybody and it’s not good for the economy’s long-run potential for anybody across the income distribution,” he added.
On Wednesday, the government will release its latest data on consumer prices, followed by April producer prices on Thursday.
Economists expect the pace of inflation to have eased a bit in April, with the headline consumer price index likely to show an 8.1% increase over the past year, and 6% excluding food and energy, according to Dow Jones estimates. That compares to March’s respective climbs of 8.5% and 6.5%.
Those kinds of numbers provide some comfort to Kashkari, though he said conditions remain challenging as long as the supply and demand imbalances remain.
“We just need to keep paying attention to the data,” he said. “Some of the more recent inflation data by some measures is a little softer than we had thought might come in. So maybe there’s some evidence that things are starting to soften by a hair. But we just need to keep paying attention to the data and see where it comes out before we can draw any conclusions.”

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Good evening,China’s export growth slowed sharply last month as draconian Covid lockdown measures and weakening global demand battered the world’s second-largest economy.In April, exports were up 3.9 per cent on 2021 — the slowest rate in two years — after growing nearly 15 per cent in the previous month, official data released today showed.The figures add to the pressure on President Xi Jinping, who has been heavily criticised both at home and abroad for his zero-Covid policy.The hit to the country’s manufacturers has also undermined hopes that Beijing will be able to achieve its goal of 5.5 per cent annual growth, which is its lowest target in three decades.Global stocks tumbled as investors worried about the signs of a slowdown in the world’s largest economies and the reining in of crisis-era stimulus measures by central banks.The pullback comes as investors grapple with interest rate rises from the US Federal Reserve as well as intense inflation and emerging signs of strain in the global economy.Latest newsPutin claims Russian troops ‘fighting on their own land’ in Victory Day speechEmmanuel Macron proposes new and broader European communityUK opposition leader vows to quit if fined for breaking Covid rulesFor up-to-the-minute news updates, visit our live blogNeed to know: the economyVolkswagen’s chief executive has called for a negotiated end to the war in Ukraine to protect worldwide free trade, as the carmaker grapples with the war’s effects on its supply chain. Speaking at the FT’s Future of the Car summit, Herbert Diess also warned that the German group would struggle to overtake Tesla as the world’s biggest maker of electric cars by its target of 2025.Latest for the UK and EuropeEuropean capitals should consider seizing frozen Russian foreign exchange reserves to cover the costs of rebuilding Ukraine after the war, Josep Borrell, the EU’s high representative for foreign policy, has told the FT.The cost of living squeeze will tighten further this year, according to ScottishPower chief executive Keith Anderson, who warned that household fuel bills in the UK could rise by a further £900 on top of the £1,971 price cap sanctioned by the regulator last month.The rising cost of fuel and food are tempting some of the UK’s poorest households into “buy now, pay later” financing schemes, according to consumer groups. Energy and debt advice groups have warned that the “really worrying” development is a sign that individuals and families are having to resort to increasingly “desperate” measures to cover basic expenses.The Faroe Islands, a self-governing part of Denmark that is not in the EU, has approved legislation to allow sanctions against Russia. It is the first time the islands, with a population of only 53,800, have levied sanctions against any country.Global latestThe US sought to tighten sanctions on Russia yesterday by blacklisting a swath of financial executives, including — for the first time — those at Gazprombank and restricting the provision of professional services.Need to know: businessGerman vaccine pioneer has BioNTech comfortably beat analysts’ earnings and revenue forecasts, as surging rates of the Omicron variant of Covid-19 fuelled demand for the vaccine it jointly developed with US healthcare company Pfizer. However, BioNTech still forecasts that sales will fall year on year, anticipating revenue of between €13bn and €17bn, compared with almost €19bn last year.Indian tycoon Mukesh Ambani’s Reliance Industries spent almost $1bn in the first quarter of this year. The investments were in renewable energy, fashion and ecommerce companies as the conglomerate works to diversify away from fossil fuels.Rightmove chief executive Peter Brooks-Johnson has announced that he will step down early next year after more than 16 years at the UK property portal. His departure comes as the prospect of a slowdown in the housing market mounts, due in part to rising interest rates pushing up mortgage costs.Morrisons is set to prevail in a battle to buy McColl’s with a last-minute offer for the crisis-hit convenience store chain that beat petrol station operator EG Group. Convenience stores such as McColl’s prospered in the early stages of the coronavirus pandemic when consumers needed to shop close to home, but have suffered as consumers reverted to using them just to top-up their larger shops.The World of WorkA warning to all of you (including myself) who rail against modern portmanteau: we are now entering a new era of ‘bleisure’, the merging of business travel with holidays. The reason, according to FT work and careers writer Emma Jacobs, is that workers want more flexibility and are keen to explore.Foot massages, table football and mandated time off between Zoom meetings are all being trialled in an attempt to support employee wellbeing in the workplace. But these efforts to manage workplaces post-pandemic have raised thorny challenges, according to Andrew Jack.The to-do list is dead. Long live the “recovery achievements”. That is the message from this week’s Business Life column, guest written by Miranda Green. Find out what her recovery achievement treat of choice is.Get the latest worldwide picture with our vaccine trackerAnd finally . . . There are few people who have not been touched by Jony Ive’s work. Now, the industrial designer, whose artistry turned Apple laptops, smartphones and tablet computers into highly desirable objects, investigates the craft of the hand and the art of making objects as guest editor of our How to Spend It magazine.

Jony Ive, right, and his father Michael clasp hands © David Sims More

Germany’s economy faces losing around 12 per cent of its annual output — some €429bn — if Russian natural gas supplies stopped abruptly, according to a new study by an adviser to the government. The study by Tom Krebs, an economics professor at the University of Mannheim who advises the finance ministry in Berlin on economic policy, is more pessimistic than most previous estimates and is likely to stiffen the government’s resolve in resisting calls for an immediate EU embargo on all Russian energy imports.It is also likely to fuel an often-fraught debate between German economists over whether the country could handle the economic impact of a ban on natural gas. The estimate comes as Brussels is preparing to step up its sanctions on Moscow over its invasion of Ukraine by phasing in a ban on oil imports from Russia, adding to an earlier coal embargo, while Germany is searching for ways to reduce its heavy reliance on Russian gas.“An instant and complete stop of Russian natural gas imports would, in combination with the already agreed coal embargo and the forthcoming oil embargo, probably amount to an economic slump comparable to the decline in GDP during the 2009 financial crisis or the 2020 Corona crisis,” said Krebs.Other estimates have put the impact of a sudden halt to Russian gas imports at between 0.2 and 6.5 per cent of German GDP. Germany, which until the war received 55 per cent of its imported gas from Russia, reduced this to 35 per cent in April by increasing alternative supplies and aims to lower it to 30 per cent by the end of the year. However, the economy ministry said recently it would take until 2024 to reduce the share of gas imports coming from Russia to 10 per cent and industry leaders worry that a sudden gas shut-off could still paralyse large parts of the country’s manufacturing sector. Some economists support the government’s gradual approach, warning a sudden, continent-wide supply cut-off could permanently damage the competitiveness of Europe’s economy and even fuel social unrest. But others say ending Russian energy imports would be “manageable” for the German economy. Rüdiger Bachmann, an economics professor at the University of Notre Dame, who co-wrote a report that suggested the maximum hit was just 3 per cent of GDP, told the FT an embargo would only lead to a “temporary crisis”. He added: “Germany has the fiscal capacity to pay for this.”

Krebs’ study analysed the “second-round effects” of gas shortages that would force key industries to stop production, including in the automotive, chemicals, metals, food, glass, ceramics, machinery and paper sectors. Drawing on earlier studies of the impact on Japanese industrial production after the Fukushima nuclear disaster, Krebs concluded there would be a fivefold magnifying effect of the initial impact of lower production in gas-intensive industries.Krebs presented two scenarios, one in which Germany could not easily replace much of the Russian gas it imports and another where this is more successful than expected. In the first scenario, he assumed a drop in production that wipes out between 3.2 and 8 per cent, or between €114bn and €286bn, of German GDP. On top of that he predicted a hit to demand caused by higher prices equal to between 2 and 4 per cent of GDP. In total, the loss of GDP in the year after an abrupt ending of Russian energy imports would be between 5.2 and 12 per cent.In the milder scenario, the hit to production would be between 1.2 and 3 per cent of GDP, so the overall loss of GDP would be between 3.2 and 7 per cent.“When it comes to natural gas, there is a significant difference between a one-year adjustment period and a three-year adjustment period,” wrote Krebs, whose study was funded by the Macroeconomic Policy Institute in Düsseldorf, which is part of the trade union-affiliated Hans Böckler Foundation.Last month, Russia cut off gas supplies to Poland and Bulgaria after they refused to change the way they pay Moscow for gas to enable the Kremlin to access the cash it receives for energy exports. But officials in Germany — and official technical guidance from the EU — indicate they believe a sanctions-compliant payment method is still possible. More

One of the Bank of England’s interest rate setters has warned that inflation pressures are “uncomfortably high” and if the central bank fails to rein these in, it would be “very costly” for the UK economy. Speaking at the Resolution Foundation think-tank in London on Monday, Michael Saunders, one of the four external members of the BoE’s monetary policy committee, said he wanted monetary policy to stop stimulating economic activity.Having voted in the minority for a 0.5 percentage point increase last week, Saunders said he thought the BoE’s main interest rate should rise “relatively quickly towards a more neutral stance in order to prevent the recent trend of higher inflation expectations and rising pay growth from becoming more firmly embedded”.The majority on the committee voted for a quarter-point increase to 1 per cent.Saunders declined to give a clear definition of his view of the neutral interest rate, where the cost of borrowing neither stimulates economic activity or seeks to damp it. But he indicated it might lie in the range between 1.25 per cent and 2.5 per cent. He noted that financial markets did not expect CPI inflation to fall back to 2 per cent if interest rates were in that range. Instead of following BoE governor Andrew Bailey’s language of a “carefully calibrated” response to high inflation, Saunders preferred to highlight the risks of doing too little to stem inflationary pressure in the UK economy. He noted that spending had held up well, companies expected to raise prices significantly in the months ahead and domestic prices of core services were rising almost twice as fast as the BoE’s 2 per cent inflation target. The capacity of the UK economy to deal with high levels of spending was unfortunately more limited, Saunders added, with long-term sickness rates up sharply since the pandemic began as well as supply friction resulting from Brexit.“We should lean strongly against the . . . risk [of inflation being persistently too high], because if it materialises — not a negligible risk, in my view — then the process of re-anchoring price expectations [to the 2 per cent inflation target] could be very costly in economic terms,” Saunders said. If the economy performed worse and inflationary pressures subsided, he said the MPC “could reassess” the stance of monetary policy quickly.

The most likely cause of interest rates rising into a zone where policymakers actively sought to cut spending and raise unemployment would be if the BoE took too little action now. In these circumstances it would be duty-bound to squeeze inflation out of the economy later, Saunders said. “I’d much rather not be in that scenario”, he added.Saunders’ hawkish comments came as Andy Haldane, the former BoE chief economist, who now runs the Royal Society for Arts, took to the airwaves to criticise his former colleagues for acting too slowly to tackle inflation. “This [inflationary period] won’t be come and gone in a matter of months. I think this could be years rather than months,” Haldane told LBC radio on Monday, adding that the inflation outlook was “getting on” to the levels seen in the 1970s. Haldane added: “Now, to be clear, no amount of earlier squeezing on the brake would have fully prevented the cost of living crisis we’re getting. That is with us anyway, but do I wish we’d done a little bit more a little bit sooner, to tighten things up.” More

The first week of summer sunshine is a tough time to get Britain focused on next winter’s energy crisis. But ScottishPower’s chief executive Keith Anderson is right to be shouting about it.His concern is that the government is taking a “wait and see” attitude to what is obviously a looming emergency. Warmer temperatures now may cushion some households from the full force of the 54 per cent rise in the capped energy tariff to £1,971, which took effect in April. But halfway through the period in which the next price cap is set, another jump looks inevitable: it could increase to between £2,600 and £2,900 from October, according to various estimates, or by as much as another 47 per cent.Those prices are for the default tariffs paid by direct debit. Some of the most stretched households, including those on prepayment meters, pay more. And whereas the tariff cap once applied to 15mn households, it now will affect 22mn and rising, or approaching 80 per cent of the country.The government’s existing package of support is clearly inadequate, amid forecasts that 40 per cent of households could find themselves in fuel poverty, spending a high proportion of their income on heating and energy. What’s on offer is up to £350 off bills. Only £150 is even vaguely targeted at those most in need, through the blunt mechanism of council tax bands set on 1991 property values. The other £200 discount won’t kick in until October, is spread across the entire market and is repaid at £40 a year over five years. That’s against bills that could have risen by up to £1,600 come October compared with a year earlier.Anderson’s proposal has its merits. Perhaps with an eye to political acceptability, it is essentially a bigger, more targeted version of the government’s upfront discount. He suggests a £1,000 benefit to households falling into fuel poverty, which based on the above numbers could be 10mn, making a cost of about £10bn.Everyone can then argue about how to pay for that. Anderson’s suggestion essentially apes the Treasury scheme, recouping perhaps £35-£40 each year from all households over ten years. If regulated by Ofgem, suppliers could get financing through a similar structure to that allowing them to borrow to cover the upfront costs of taking on customers of failed suppliers.Given that this looks and feels like a tax, levied to benefit the most vulnerable in society, it might just be easier to use the systems designed for that purpose. Regardless, one lesson of the pandemic was that new government schemes needing to be rolled out quickly (which this does) work best when built on existing databases: it’s not clear how you’d easily define the universe of people who should receive the discount. Using a combination of prepayment accounts, universal credit and warm homes discount recipients gets you only to about half the 10mn who could find their finances unacceptably stretched next winter, on ScottishPower estimates. Inevitably, you’d get a boundary issue, where struggling households caught on the wrong side of a definition see bills rise further without benefiting. Customers are already on the hook for the costs of abject regulatory failure and mopping up after reckless suppliers that failed to hedge their energy costs.

This is also not a one-winter problem. Forward gas prices for the winter after next are more than three times the equivalent price in May of last year, according to Martin Young at Investec. “We don’t see wholesale prices returning to pre-crisis levels until the 2030s,” adds Tom Edwards at Cornwall Insight. “The world has changed and replumbing our energy system is not going to be cheap.” The government has launched a long-term review of the electricity market. But there are other issues such as whether pricing should be decoupled from the marginal gas price, or if a social tariff would help tackle energy hardship, that will need addressing sooner.Anderson is rightly frustrated by a lack of action addressing an urgent problem. “We know how bad this is going to be in October,” he says. We can’t duck the question of what happens after that [email protected]@helentbiz More