Economy

Rising prices of energy and raw materials are hitting UK businesses hard, particularly in the hospitality sector, according to official data released on Thursday that fuel concerns about a further rise in consumer inflation and a new economic downturn.Half of UK businesses reported an increase in the prices of materials, goods or services bought in March, according to a comprehensive survey published by the Office for National Statistics.The proportion rises to 77 per cent in the accommodation and food services sector and is well above 50 per cent in construction, retail trade and manufacturing.Some of the rising costs were passed on to consumers, with 23 per cent of businesses also reporting increased prices of sold goods and services. This points to consumer inflation rising further in the months ahead after hitting a 30-year high in March. However, about two in five companies reported they had had to absorb the rising costs.Jack Sirett, head of dealing at global financial services firm Ebury, said the figures laid bare the “challenges facing companies as well as the further pain that is still to come the way of customers”.The data comes as demand is also weakening. One in five businesses reported that their turnover decreased in March compared with the previous month, ONS data showed, a share that rises to more than one in three in the hospitality sector.The figures were released as businesses in the services sector reported the highest input costs since records began in 1996, according to the final reading of April’s S&P Global purchasing managers’ survey. The closely watched survey also showed business confidence dropping to the lowest level in a year and a half. Growth in the services sector, which makes up 80 per cent of the UK economy, slowed sharply with the headline PMI index for services dropping to 58.8 in April from 62.6 in the previous month. Andrew Harker, economics director at S&P Global, said: “The twin headwinds of the cost of living crisis and the war in Ukraine started to bite on the UK service sector during April.” He added that “worryingly, companies seem to be expecting impacts to be prolonged, with business confidence dropping to the lowest in a year-and-a-half”.

Economic growth had slowed to a crawl in February with Thursday’s data pointing to faltering activity in the most recent months.The figures show “that the intensifying squeeze on households’ real disposable incomes is starting to slow the economic recovery”, said Samuel Tombs, economist at Pantheon Macroeconomics. He expected the economy to shrink by 0.4 per cent in the second quarter and to grow modestly thereafter. He added that “the growth wobble in Q2 would reinforce the Monetary Policy Committee’s case for only ‘modest’ increases in its benchmark interest rate in the next few months”. Tombs said he expected no more than a 25 basis points rise on Thursday and a further 25 basis points increase in August, leaving the rate at 1.25 per cent at the end of this year. More

To understand how Russia is being affected by the west’s sanctions, I have been listening to a lot of experts on the country’s economy and on how sanctions work. They include the Bank of Finland’s institute for emerging economies, or Bofit, which I mentioned last week and which should be one of your go-to places for information about the Russian economy. This week I also moderated a fascinating discussion on the sanctions hosted by Queen Mary University of London’s Global Policy Institute. You can watch the recording here.Here are the main things I have learned:Knowledge is power. There is little good to say about Russian governance, but Russian economic statistics have long been at the international gold standard. But since the war started this has been changing. My Bofit interlocutors said data on individual banks are no longer published. Nor are detailed oil production data, according to Sergey Aleksashenko, a former Russian deputy finance minister and deputy central bank governor. Expect other statistics to be discontinued if the Kremlin determines they give too much visibility of economic strength and weaknesses.So what do we know? We know that the Russian economy has been isolated from the rich world in very little time. Imports seem to have collapsed. This reflects at least three things — a steep downturn in gross domestic product, constraints on financial flows with the outside world, and sanctions on trading specific goods, in particular high-tech inputs. Estimates of Russia’s GDP collapse this year range from just under 10 per cent to 15 per cent. The flip side is inflation. “Russia now counts inflation per week,” says Sergei Guriev, economics professor at Sciences Po in Paris. But the rate has fallen from 2 per cent per week just after financial sanctions were imposed to 0.25 per cent per week now.How bad is the hit? Russian real incomes are clearly going to suffer. But the impact may be felt quite differently across different sectors, and it can be hard to distinguish the effects of sanctions and of hoarding by consumers. A Bofit report notes: “March retail sales were still up by 2 per cent year on year, largely on foodstuff purchases. Inventories of many staple items such as vegetable oil and sugar were drawn down to exceptionally low levels. Most of the growth spike in non-food goods sales took place already in February, and sales were falling by March.” But car sales fell by nearly two-thirds, and air freight volumes have fallen by more than 80 per cent.

It’s the complexity that kills you. We have learned from the pandemic that supply chains are complex and can be disrupted in surprising ways. In Russia, the constraints on importing manufacturing parts and high-tech components may be the sanctions with the most damaging effects. Car manufacturing fell by half year on year in March, writes Bofit. Industrial sanctions could directly limit Russia’s ability to wage war: as my FT colleagues report, its army may be running short of precision missiles.Very interestingly, this sort of effect is teaching us that China cannot substitute for western technology, says Guriev. And we haven’t seen everything yet. Aleksashenko points out that Russian companies often stockpile components, so it may not be until the end of the year that we see the full impact of denying Russia high-tech goods and software. By then, problems could also emerge in oil production.These observations expose the limits of the import-substitution policy Moscow has pursued for the past decade or so. It was always more perception than reality, says Aleksashenko. And some experts suggest that by pursuing domestic production of finished goods through economic planning, the government may paradoxically have made Russia more vulnerable to a disruption of imported inputs, components and machinery. Financial sanctions are hard to understand. There is a lot of confusion around how the financial sanctions work. Much is made of cutting Russian banks from the Swift messaging system for cross-border bank transfers, for example. But banks have other ways to communicate. It is the right to transact in hard currencies, through so-called “correspondent” banks in the jurisdiction of the currency in question, that matters — and that could be placed under sanctions. But because the EU still wants to be able to pay for energy, it has not cut all Russian banks off from euro-denominated correspondent banking.Similarly, the bust-up over Russia’s demand to be paid for energy in roubles is more important for political and legal contracting reasons than for giving the Kremlin “access” to euros. Recall that the Russian government’s budget is denominated in roubles. State-owned gas and oil companies, while paid in hard currency, draw up their account and calculate their taxes in roubles, and they will have no problem exchanging their euros for roubles with other, non-sanctioned, Russian companies or individuals in private currency markets, regardless of sanctions on the central bank.As a result, the government budget remains robust, and its expenditures are of course in roubles. (This is why ending purchases of Russian energy is more important than how hard currency earnings are converted.) Sanctions are leaky and enforcement is key. As a result, financial sanctions are not going to directly affect what the Russian government can do at home. As opposed to what it can buy for its foreign currency earnings abroad, its domestic financial power largely depends on the development of the real (non-financial) Russian economy. But since that, of course, depends hugely on how it can or cannot transact with the outside world, financial sanctions matter. The point is simply that they may not be as constraining as sometimes thought. But they could be tightened and applied to more people and entities, and above all, they could be strictly enforced. And for enforcement, it makes a difference if Russia’s energy earnings are kept in accounts that western intelligence can monitor. It is hard to know, but one hopes western governments keep a close eye on movements in and out of, say, Gazprom’s accounts in EU-based banks or its correspondent banks there. The new transatlantic task force for sanctions enforcement will be crucial.It’s a long game. What all of this means is that patience is essential. The effect of sanctions will change over time. They also have to be sustained and therefore need political support in the sanctioning countries. But beware of arguments along the line that “sanctions haven’t changed Putin’s motivations, so what’s the point of damaging ourselves”. Economic sanctions can also work through attrition and denying the other side important capabilities — indeed much like military warfare itself. Other readablesTo understand how Germany became so dependent on Russian energy, read the New York Times’s interview with former chancellor Gerhard Schröder.The Bank for International Settlements has issued a proposal for reforming data governance to give more control to those who generate data in the first place.The US college-educated working class is not happy.I moonlight as a speechwriter in a piece on how western leaders must prepare their citizens for a war economy.Numbers newsThe Federal Reserve raised its policy rate by half a percentage point. Meanwhile, fears of stagflation are increasing around the world.In a devastating piece of reporting, the AP estimates that some 600 people died in the Russian bombing of a theatre in Mariupol, many more than previously feared. More

ArcelorMittal expects global steel consumption to contract this year as the war in Ukraine and Covid-19 restrictions in China slow the rebound from the pandemic. The world’s second-largest steelmaker predicted demand for the metal would fall as much as 1 per cent this year. The forecast compares with a previous expectation for slight growth of up to 1 per cent before Russia’s invasion. “Our first quarter performance was overshadowed by the war in Ukraine,” chief executive Aditya Mittal said in a statement as the company’s first-quarter earnings beat forecasts. “Notwithstanding this backdrop, further aggravated by rising inflationary pressures across the world, ArcelorMittal produced a strong first-quarter performance,” Mittal added, although warning the group was now “anticipating apparent steel consumption to contract slightly this year compared with 2021”.The company said it expected demand in Ukraine and Russia to dip sharply, while rising inflationary pressures in Europe would also curb demand in the region. Chinese demand would contract at the bottom end of the company’s previous forecast given what it said was the “temporary economic weakness caused by Covid-19 restrictions”.Genuino Christino, ArcelorMittal chief financial officer, said the situation in China was “quite bad” with data showing that steel prices in the country were “quite low” and the profitability of the mills also low. “That reflects the demand situation there today with large parts of the country under lockdowns,” he said. However, he noted that despite often being bearish on China in the past, the country had “proved us wrong”. Much would depend on how quickly Beijing could progress investments, including in infrastructure projects. The demand outlook has also been hit in Ukraine where ArcelorMittal is one of the largest steel producers with a big facility at Kryvyi Rih in the south. The country is a big exporter of steel to Europe and the conflict has severely disrupted production and supplies.Both ArcelorMittal and Metinvest, Ukraine’s largest producer, which owns the besieged Mariupol steelworks, temporarily suspended operations in the immediate aftermath of Russia’s incursion. ArcelorMittal said on Thursday that it had now restarted operating one of three of its blast furnaces at Kryvyi Rih. It said production of iron ore is running at about 50 to 60 per cent capacity. It expects demand in the Commonwealth of Independent States (CIS) region, which includes Ukraine and Russia and other former Soviet states Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan, to contract by more than 10 per cent, down from a previous range of between zero and 2 per cent growth. The gloomier forecast was echoed by Eurofer, the European trade body, which warned that soaring energy prices, ongoing disruptions in global supply chains and the war in Ukraine were “set to weigh heavily on the outlook for 2022”. “The evolution of the steel market for 2022 and 2023 remains subject to a high level of uncertainty, which is likely to continue to undermine demand from steel-using sectors,” said Axel Eggert, director-general. Despite the uncertainties, ArcelorMittal reported a strong start to the year. It said earnings before interest, tax, depreciation and amortisation were $5.08bn, against the average forecast of $4.57bn. It also announced a second $1bn share buyback programme for 2022.Steel shipments for the period fell 2.7 per cent to 15mn tonnes compared with the fourth quarter last year, largely owing to the impact of the war in Ukraine, the company said.The group’s shares rose 3 per cent to €27.82 by late morning in Amsterdam trading. More

Too much inflation is bad news for asset prices and for living standards. We are now at the point where high inflation is biting into people’s incomes and forcing them to make tougher choices about what they can afford. Some companies can pass on the full cost increases they are experiencing when paying staff, buying energy and sourcing raw materials because they sell essentials and have strong brands. Others will start to struggle as demand for more discretionary items drops or where their brand is not strong enough to get away with a substantial price rise.When companies that have in the past grown strongly report their figures, any that show weakening turnover or falling margins stand to be marked down heavily.The inflation which was building on both sides of the Atlantic from loose policy last year has been boosted by the surge in energy and food prices. The supply interruptions that Covid closures created have been intensified by many countries refusing to buy Russian energy and by the inability of Ukraine to grow and export the large quantities of grains and cooking oils they usually supply. As a result we have, as expected, seen a further escalation in price rises. Spanish producer inflation hit a startling 46 per cent in March, consumer price rises got close to 10 per cent in the Netherlands and house prices in the US have been leaping by around one-fifth.

I would like to find some bullish news, but we have just lived through another month of falling share indices as markets adjust to the new realities. Once again, the substantial cash in the fund was the best performer — while falling behind price inflation. The value of the inflation-linked bonds, held in anticipation of faster price rises, can still be adversely affected by rising rates even though they are indexed to inflation. The war in Ukraine rains down death and destruction, forcing the advanced world into tougher action to remove business interests from Russia and to reduce dependence on Russian energy. The inflation of asset prices that markets enjoyed in recent years from low interest rates and plenty of official money printing has been replaced by rising interest rates and an end to money printing in most advanced countries led by the US.Japan is an exception and the euro area has yet to make the moves now anticipated by markets to end quantitative easing and move to rate rises. China has had a further brush with the Covid virus and has entered another series of damaging lockdowns, leading to more shipping delays and goods shortages.The central banks are at different stages in their battles to get inflation down. Several of the emerging countries have raised rates a lot to curb the pressures. The Bank of England led the way for advanced countries and the US is now set to catch up with several rate rises. The euro area is way behind where it needs to be, as it still considers when to end the bond buying that has kept rates on the floor for so long. They will now be assisted in their task of getting inflation down by the big hit to real incomes and spending power from inflation in the prices of basic goods.

Central banks traditionally lurch from boom to bust, bringing inflation under control by cooling an economy and often reducing demand so much that it causes a recession. This time ultra-high prices for heating and eating will do some of their work for them. But they have no easy way out. Do they look in the rear-view mirror at the inflation and apply the monetary brakes more severely, risking recession? Or do they look ahead to see the slowdown that high inflation, more supply disruptions and their monetary tightening so far will bring? That may mean not going too far once they have ended quantitative easing.The theme of countries making and growing more for themselves was one we highlighted when President Trump challenged China as a trade cheat and has been intensified by lockdown shortages and now by the imperative to remove Russia from business partnerships.The world is splintering into regional blocs and nations, loosely grouped around the autocrats under China and Russia on the one hand and the democrats and Europe led by the US on the other. These changes will accelerate technology revolutions in artificial intelligence, robotics and digital communications as high-wage countries seek to do for themselves more of the things that had been contracted out to lower wage economies.The green revolution is still the controlling idea behind much US and European policymaking, but the realities of dear and scarce energy is requiring a detour on the road to net zero. There needs to be more oil, gas and coal for a little longer as the transition is not yet ready to replace them. Less international trade, more subsidies and a home bias will adversely affect world growth and fuel price rises.I am still watching for when we can start to look through the bad news on inflation, output and company prospects to better times. We are not yet at the point where inflation is falling from highs nor where we can point to an eventual end to rate rises. Cash and caution still helps the fund.Sir John Redwood is chief global strategist for Charles Stanley. The FT Fund is a dummy portfolio intended to demonstrate how investors can use a wide range of ETFs to gain exposure to global stock markets while keeping down the costs of investing. [email protected]

The Redwood Fund, May 3 2022Name% portfolioLyxor Core MSCI Japan (DR) UCITS ETF Dly Hgd GBP A2.80%L&G Hydrogen Economy UCITS ETF1.80%Cash Account [GBP]26.70%Ishares Core MSCI EM IMI UCITS ETF USD Acc1.90%Lyxor FTSE Actuaries UK Gilts Inflation Linked (DR) UCITS ETF D5.10%iShares Global Clean Energy1.80%Legal & General Cyber Security UCITS ETF2.00%Ishares Core MSCI World UCITS ETF GBP Hgd (Dist)21.30%L&G All Stocks Index-Linked Gilt Index I Acc3.90%Legal & General ROBO GI Robotics and Automation UCITS ETF1.80%SPDR BofA ML 0-5 Yr EM $ Govt Bd UCITS ETF2.00%iShares $ TIPS 0-5 UCITS ETF GBP Hedged13.30%Vanguard FTSE 250 UCITS ETF GBP Dist4.30%XTRACKERS S&P 500 UCITS ETF5.80%X-trackers MSCI Korea ETF1.60%X-trackers MSCI Taiwan ETF4.20%Source: Charles Stanley More

As Jay Powell tries to reframe how the Federal Reserve will tackle the highest inflation in roughly 40 years, one of his most challenging tasks has been convincing investors of the US central bank’s commitment to doing so.Having jettisoned an initially “patient” approach in favour of being “humble and nimble” about moving “steadily” towards tighter monetary policy settings, the Fed chair has embraced moving “expeditiously” towards “neutral” rates that will neither stoke demand nor constrain the economy. Powell repeatedly invoked that message at the press conference following Wednesday’s rate decision, as he explained the Federal Open Market Committee’s rationale for raising the federal funds rate by half a percentage point for the first time since 2000, to a new target range of 0.75 to 1 per cent. But even as the Fed embraced a much more aggressive approach to tackling elevated inflation, investors detected dovish signals that suggested a less-forceful central bank than financial markets had expected.Heading into the meeting, the odds of the Fed delivering a 0.75 percentage point rate increase at a forthcoming meeting were creeping higher, as traders bet the Fed would keep all options on the table as it stepped up its response to elevated inflation. When asked about that possibility at the press conference, Powell effectively ruled out such a big adjustment and instead signalled half-point rate rises at the next two meetings. That sent US stocks soaring, with the S&P 500 and technology-heavy Nasdaq Composite both closing roughly 3 per cent higher. Government bonds also rallied, with the yield on the two-year Treasury note, which is particularly sensitive to central bank policy, dropping 0.13 percentage points to 2.64 per cent. “Do I think that as Jay Powell entered the press conference that on his list of objectives was to ease financial conditions? I don’t,” said Nathan Sheets, global chief economist at Citigroup and a former under-secretary at the US Treasury.“I don’t think if you were to compare it to other Fed meetings or Fed rhetoric over time, that this was a dovish Fed, but when you compare it to some of the expectations of the market and some of the worries that were in the market, it was not as hawkish as some had feared.”The stock market rally ignited by scrapping the prospect of a larger rate rise undid some of the “good work” the Fed had accomplished in recent months, said Aneta Markowska, chief financial economist at Jefferies, as it guided financial markets to price in a much more hawkish policy path. “Everything’s rallying, but the more the markets celebrate, the more the Fed is actually going to have to lean against it,” she warned.Liz Ann Sonders, chief investment strategist at Charles Schwab, added that should it persist and “froth” returns to the market, the Fed will have to go “a little bit harder” to tighten financial conditions.Powell also stopped short of acknowledging that interest rates will need to rise to a level that actively constrains economic activity, in order to bring core inflation — running at an annual pace of 5.2 per cent, according to the central bank’s preferred metric — back in line with its longstanding 2 per cent target. Rather, he only admitted it was “certainly possible” rates will need to move above neutral in order to tame inflation, but that the Fed “can’t know that today”. He added, however, that if warranted by the data, the Fed “will not hesitate” to do so.“The reality is that they will have to go past neutral in order to slow the economy,” said Seth Carpenter, who spent 15 years at the central bank but is now the global chief economist at Morgan Stanley. “The tricky part is slowing it that much, without slowing it so much that it tips over into a recession.”

Complicating matters is what exactly the neutral rate is today — a level Powell admitted on Wednesday was “not something we can identify with any precision”. Fed officials broadly view neutral to be about 2 and 3 per cent, when inflation is at 2 per cent, but some economists argue it is now much higher — potentially as much as 5 per cent — given the magnitude of price pressures. Despite that challenge, Powell wavered little from his earlier optimism that the Fed can achieve a “soft or softish landing”, not least because of the strength of household and corporate balance sheets as well as the historically tight labour market.“It just seems like he painted this sort of fictional Goldilocks scenario that’s going to somehow fix inflation without the Fed having to overshoot the neutral rate significantly or maybe not at all,” Markowska said. “It doesn’t really add up to be honest.” More

The US economy’s long era of cheap shale gas is showing signs of fading, with prices hitting the highest in more than a decade and Europe and Asia ready to pay more to import American supplies. The Henry Hub natural gas benchmark settled at $8.415 a million British thermal units on Wednesday, more than double the price at the start of the year and far above the $3 average of the previous 10 years. A persistent source of demand are plants that liquefy the gas for export overseas. The coastal facilities, a critical piece of Europe’s plans to cut Russian supplies after Moscow’s invasion of Ukraine, have been running at maximum capacity during the rally. Shale gas producers, whose headlong growth in the 2010s depressed prices and made US liquefied natural gas export projects viable, have also been slow to increase output in response to the market surge. Demand from LNG plants has averaged more than 12.3bn cubic feet of gas a day (equivalent to 127bn cubic metres a year) since the start of March — about 17 per cent more than last year and almost as much as is consumed by the US residential sector, according to Refinitiv. More shipments are anticipated this year as Cheniere Energy expands an export plant in Louisiana and rival Venture Global opens one in the state. The Energy Information Administration forecasts LNG exports, which began on the Gulf of Mexico in 2016, will increase another 25 per cent between 2021 and 2022. Gas in the US remains far cheaper than in Europe, where prices were almost $37 a million Btu this week, or in Asia, where they were $23.5. The disparity creates an incentive to add more export plants. US energy infrastructure companies NextDecade and Energy Transfer this week announced long-term gas sales contracts for two proposed projects in Texas and Louisiana, respectively. The US and EU recently signed an agreement in which the US would to ship 50bn cubic metres a year of added LNG to Europe by 2030, almost 50 per cent more than the US’s current export capacity.The extra LNG demand comes as US electricity consumption is on the rebound, driving domestic gas consumption. Combined with sluggish production growth from shale gasfields, it has left US gas stockpiles at their lowest seasonal level in three years and well below the five-year average. “Inventories are low and exports are high because of Ukraine. And so prices are rising too,” said Andrew Gillick, energy strategist at Enverus, a consultancy. “It’s as simple as that.”

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Consumers in the US are feeling the pinch. “But for LNG, the price of Henry Hub would be $3.50 a million Btu,” said Paul Cicio, president of the Industrial Energy Consumers of America, a trade group that has long criticised US LNG exports. Cicio said some of his group’s member companies had been trying to expand manufacturing capacity but could not because of higher natural gas prices. Fertiliser, paper, cement and glass manufacturers were among those most exposed, he said. Some Democratic politicians have also urged a rethink of foreign sales of US gas that flows on LNG tankers and in pipelines to Mexico and Canada. In February, a group of senators wrote to US energy secretary Jennifer Granholm urging her to take “swift action to limit US natural gas exports”.“We understand there are geopolitical factors and global and regional markets to consider,” the senators wrote. “However, the administration must also consider the potential increase in cost to American families because of higher export volumes.”Analysts say that as long as Asian and European prices remain elevated, heavy gas users in the US will continue to enjoy a competitive advantage. “For industrial consumers, [the US] is still a better place than the rest of the world,” said Peter Rosenthal, head of US power at consultancy Energy Aspects. Cheniere on Wednesday reported a jump in first-quarter revenue as it exported a record number of cargoes in the period, 75 per cent of them to Europe. The biggest US LNG group also raised its profit forecast for the year by almost 20 per cent. The US gas price surge has been good news for shale producers. Chesapeake Energy, which went bankrupt in mid-2020, on Wednesday reported record quarterly free cash flow in the first three months of the year. EQT, the country’s biggest producer, last week raised its free cash flow guidance for the year by 50 per cent “given the positive fundamental backdrop for natural gas prices”.But shale gas companies have been slow to boost production despite higher commodity prices. “Producers are not responding because everyone is so focused on capital discipline,” said Rosenthal, who added that a “Covid hangover” was still causing labour shortages and late winter outages in areas such as North Dakota were also hindering drillers.Research firm Rystad Energy said publicly listed shale producers this year would increase free cash flow — income left after subtracting for outflows and asset maintenance — 70 per cent this year, to a record high above $830bn. But their capital spending would rise only 11 per cent to $286bn.The amount of cash from operations reinvested by shale companies this year would be just 26 per cent, compared with more than 70 per cent in previous years. Rising operating costs were another deterrent to a boost in supply, analysts said. “Well costs are going higher, inflation is rampant, margins are going to be crushed,” Gillick of Enverus said. “It’s not so easy to increase drilling, even if Europe needs the gas.” More

Good morning. Yesterday, the Federal Reserve said exactly what everyone thought it was going to say, but, as usual, the market found something in the press conference to get worked up about. More on that below, and on the long-term outlook for bonds. Email us: [email protected] and [email protected] Fed doesn’t have a plan, and neither do youJay Powell ruled out a plan the Fed never articulated, and markets rallied. That’s the short version of yesterday’s meeting and the overeager reaction to it. A 75 basis point interest rate increase was never really on the table, save for some heavily caveated musings from one Fed official. But markets, poised for a hawkish surprise, were wrongfooted after Powell said such an increase was not being “actively” considered. Immediately after the words left Powell’s lips, the S&P 500 rallied nearly 3 per cent and bond yields fell.This seems odd to us. Powell’s message was not a dovish one. In yesterday’s press conference, he promised a sprint toward higher rates, partly in 50 basis point increments. The hope is to get near the 2-3 per cent “neutral” (ie, non-accommodative) policy range while engineering a soft landing — that is, moderating inflation without a harsh decline in growth. This will be very hard, as Powell acknowledged. Maybe so difficult that a “softish” landing should be considered a relative success:I’d say we have a good chance to have a soft or softish landing or outcome . . . Households and businesses are in strong financial shape, you are looking at excess savings on balance sheets . . . businesses are in good financial shape. The labour market is very very strong . ..[A soft landing] will be very challenging, it is not going to be easy. It may well depend on events that are not under our control. But our job is to use our tools to try to achieve that outcome.Powell is nudging the goalposts here, which worries some people. One rates trader told an FT colleague this:We had to giggle when he said softish . . . imagine if you’re on a plane and the pilot says get ready we should have a softish landing. Not particularly comforting.If you stand up in front of everyone saying softish, imagine what you’re saying behind closed doors — if we have to bring about a mild recession here we’re probably OK with it, given how far we’ve missed on inflation.There’s room to disagree on what “softish” means, and perhaps a mild demand slowdown is in fact the least-worst option now. In any case, we were spooked by something else Powell said:It is a very difficult environment to try to give forward guidance 60, 90 days in advance, there are so many things that can happen in the economy and around the world. We are leaving ourselves room to look at the data and make decisions as we get there.This is not shocking but it is a stark contrast to the blissful market reaction. The macro environment is so unpredictable that forward guidance — one of the Fed’s key tools — is just not reliable. In that context a 75 basis points hike, or more, could suddenly be in play the moment a hotter-than-expected wage or inflation report hits the wires. A data-dependent Fed is a jittery one, and likely no friend to stock investors. As Powell reminded everyone:Of course if higher rates are required, then we won’t hesitate to deliver them.The central bank says it is trying to minimise policy uncertainty in a world gone mad. But a mad world can produce nasty surprises. The Fed knows no better than any of us. (Ethan Wu)Are bonds in a bear market now? Here’s a view:Guggenheim Partners chief investment officer Scott Minerd called time on the long-running Treasury bull market, warning interest rates could “trend higher for a generation” as the Federal Reserve tightens monetary policy to combat inflation…“I have to throw in the towel,” Minerd, who helps oversee $325bn at Guggenheim, said in an interview. “The long bull market run in bonds has come to an end.”Note that his point is not just that the bull market is over, but also that a bear market has begun. Even after the current Covid/war crisis is over, rates will be on a rising trend, reversing the trend of the last four decades.The interview does not go into the details of why Minerd thinks this will happen, but the topic is important. Is it the case that (a) the shocks of Covid and war, and the policy responses to them, will lead to an enduring financial regime change, or (b) we were headed for regime change anyway, and the shocks hurried us along?Possibility (a) seems unlikely. Prior to March of 2020, we had a low-growth world and low nominal and real interest rates. The broad reasons for this had to do with demography, technology and inequality. The population of the world’s biggest economies is now growing slowly. There is no massive, productivity-enhancing technological change occurring. And a growing amount of the world’s wealth is in the hands of the rich, who have a low marginal propensity to consume, putting a lid on demand. All of this depresses real interest rates. Once the current crisis abates — through an immaculate disinflation, a recession or something else — all these things will still be true. Why wouldn’t we return to the secular stagnation of the pre-Covid world?On possibility (b), that Covid has pushed us more quickly toward a change that was coming anyway, the most prominent view is the one proposed by Charles Goodhart and Manoj Pradhan that I have rattled on about several times before, which is that the disinflationary forces of the globalisation decades are over. The ageing of the global population means that it will be harder to offshore production to low-wage countries, as workers grow scarce everywhere. And as the working-age population falls, so will savings. Less money will chase investment opportunities, and rates will rise. But there is a second view, which is that we are in a new era not of demographics but of policy. The idea is that we have shifted to a time of monetary and fiscal excess, which will lead to sustained higher inflation and therefore higher nominal interest rates. Michael Hartnett of Bank America lists the key shifts: “deflation to inflation, globalisation to isolationism, monetary to fiscal excess, capitalism to populism, inequality to inclusion.” Albert Edwards of Société Générale has written that “the pandemic recession has allowed policymakers to cross the Rubicon of fiscal rectitude to reach a new land — one where their existing monetary profligacy can now be coupled with fiscal debauchery”. Nouriel Roubini notes runaway levels of private and public debt, and says policymakers will try to inflate it away: “the path of least resistance is to wipe out the burden of debt with fixed interest rates, with gradually higher and unexpected inflation.” Minerd himself has hinted at this view, as well. Governments might try to inflate their countries out of debt or print their way to prosperity; I have no idea what the probability of this is. But historical instances of this approach, from Germany to Latin America, suggest that it most often leads to crises, in which higher interest rates are the least of everyone’s problems. Adding sustained, significantly higher nominal interest rates into a long-term outlook, while assuming the political, financial and economic firmament remains broadly stable otherwise, seems very strange to me. One good read“Beer and loathing in Durham.” More

Earbuds, keyboards and computer mice are plastic, often cheap, and easy to lose or discard.Many of these computer peripherals gather dust in desk drawers and end up in landfill. In fact, electronic waste — anything with a plug or battery — is now the world’s fastest-growing type of domestic refuse, according to the UN. It forecasts that, by 2030, the world will produce 74mn tonnes of e-waste a year.So it may be a surprise that a computer peripherals manufacturer — Switzerland-based Logitech — is top of this year’s FT-Statista list of Europe’s Climate Leaders.Of the thousands of companies surveyed, it was the one that cut its Scope 1 and Scope 2 greenhouse gas (GHG) emissions intensity the most — 47 per cent year on year — between 2015 and 2020.Large reductions in Scope 1 and 2 emissions intensity need to be put in context, though. Scope 1 and 2 emissions come, respectively, from a company’s own operations and from the energy it uses. Intensity is defined as tonnes of emissions of CO2-equivalent per €1mn of revenue. Reductions can therefore be achieved by buying renewable energy to power factories and using more recycled plastic in products.

High-tech landfill: the UN predicts that global e-waste will reach 74mn tonnes a year by 2030 © Alamy

And, for computer peripherals companies, Scope 1 and 2 emissions are less than 10 per cent of their total carbon footprint says Syed Yaqzan, who teaches at Cranfield School of Management and advises businesses on energy efficiency.It is Scope 3 emissions, which arise along the value chain — including from suppliers providing parts and customers using products — that cause the most environmental harm.In the case of Logitech, these Scope 3 GHGs account for 99.8 per cent of the total, because Scope 1 and Scope 2 emissions have been reduced to “negligible” levels, the company says.However, not all peripherals companies even measure their emissions, let alone have targets to cut them, experts note.“Emissions are getting outsourced to the supply chain,” says Dexter Galvin, global director of corporations and supply chains at CDP, a global not-for-profit that helps organisations manage their environmental impact.Cutting Scope 3 emissions can be hard for peripherals companies, especially smaller ones, because they do not have direct control over their supply chain, Galvin adds.Large companies, by contrast, can use buying power to cajole their main suppliers — which may number several hundred — to cut their emissions and encourage their own suppliers to do the same.Overall, though, the sector is doing better at cutting emissions than many other industries, experts say. But there is plenty of room for improvement, including in making products that last longer.Extending the average lifetime of a product from three to five years would have a “colossal impact on the carbon footprint of the device”, says Ben Stanton, a research manager for technology, media and telecommunications at consultancy Deloitte UK.

Logitech says it aims to reduce Scope 3 emissions by at least 50 per cent by 2030, compared with its 2019 levels.Its Scope 1 and 2 emissions have gone down through switching to renewable sources of energy, such as solar and wind power — to the extent that 92 per cent of the company’s energy worldwide is from renewables. Logitech hopes to reach 100 per cent by 2030.It has also built a portal for its suppliers so that they can bulk-buy certified renewable electricity for their factories.Larger suppliers typically have well-established policies on environmental, social and governance (ESG) matters says Prakash Arunkundrum, Logitech’s head of global operations and sustainability. “For smaller suppliers . . . we have had to use more cajoling . . . It’s not a question of motivation, it’s a question of [suppliers] understanding [their emissions] data.”Logitech’s other plans to cut Scope 3 emissions include making products last longer by refurbishing and reselling them, and using more low-carbon materials.Logitech has slashed its Scope 1 and 2 emissions — but nearly all of its carbon footprint is Scope 3 © Budrul Chukrut/AlamyIn the longer-term, materials derived from biological sources such as mushrooms and hemp could be used in the “next frontier” of electronics products, Arunkundrum adds.Technology can help companies measure and shrink their carbon footprints, too.Lenovo — another computer and peripherals maker in this year’s list — uses an online platform to calculate its products’ environmental impact.This tool — developed by sustainability consultancy Quantis and the Massachusetts Institute of Technology — “makes assumptions about how a product is built, [its] screen size and memory”, says Mary Jacques, Lenovo’s director of global environmental affairs and sustainability. “It will give a number for how much carbon a product will produce in manufacture, [consumer] use and disposal.”Alongside voluntary good practice, environmental regulations are being tightened.The European Commission has updated its energy label requirement for electronic products and has proposed minimum efficiency requirements for IT equipment.The EU’s Waste from Electrical and Electronic Equipment directive stipulates that 75 per cent of small IT equipment should be recovered by the maker and 55 per cent should be prepared for reuse and recycling, explains a Commission official at the environment department.

Although Logitech is headquartered in Switzerland, which is not an EU member, the company complies with all EU regulations because its products pass through EU countries — and “as a matter of best practice”.According to the Commission official, it is estimated that less than 40 per cent of e-waste in the EU is recycled. She adds that the Commission is considering further incentives for manufacturers to take back equipment and for consumers to return it.Emissions are an industry-wide problem. If all companies in the global peripherals sector tackle their Scope 1 and Scope 2 emissions, then Scope 3 emissions will necessarily plummet, says Galvin.“Every business in the peripherals sector needs to take a hard look at where these emissions are coming from and demand change from their partners,” he adds. “Every board should have a serious plan for tackling these emissions or they aren’t doing their job properly.” More