Economy

ORLANDO, Fla. (Reuters) – The highest inflation in decades is unraveling whatever policy consensus there was between the world’s major central banks since the Great Financial Crisis and global markets could buckle under resulting waves of stress and volatility.A turbo-charged dollar, which often both reflects and fuels financial market stress, risks a vicious cycle as a scramble for dollars intensifies, tightens global financial conditions and increases volatility.The dollar’s surge to its strongest level in 20 years not only reflects how aggressive investors expect the Federal Reserve to be in raising interest rates, but also how fragmented the global central bank landscape is.While the U.S. monetary authority appears strapped in for the most aggressive tightening cycle since 1994 both in scale and speed, others are at various stages of the battle against inflation, and with varying degrees of appetite for the fight.The Fed’s expected path stands in stark contrast to its three biggest peers. Central banks in Japan and China are still easing policy and the European Central Bank will struggle with its plans to tighten amid recession fears from a Ukraine-related energy shock.Whatever path major central banks follow, the burst of global inflation and fragmented policy response has put a fire under global market volatility – U.S. Treasuries implied volatility is the highest since 2009 and global financial conditions are also the tightest in 13 years.As analysts at Bank of America (NYSE:BAC) put it, two years of pandemic-fueled quantitative easing worth around $11 trillion globally is ending and markets’ ‘volatility anchor’ has been removed, threatening the disorderly moves in rates and currency markets that policymakers are desperate to avoid. “Market panics (are) often associated with divergent central bank policy objectives,” BofA wrote on Friday. Graphic: Dollar and Fed tightening cycles – https://fingfx.thomsonreuters.com/gfx/mkt/dwvkryqdmpm/DOLLARFED.jpgGraphic: Dollar and US recessions – https://fingfx.thomsonreuters.com/gfx/mkt/gkplgkqwovb/DOLLARRECESSION.jpg $1 TRILLION DEBTThe dollar index, a measure of the greenback’s value against six major currencies, is the highest since 2002. Although it has risen rapidly this year and may be due a profit-taking pause, many analysts reckon it still has room to appreciate further.A stronger dollar makes it more expensive to service dollar-denominated debt for overseas borrowers. According to Institute of International Finance estimates, well over $1 trillion of dollar debt held in emerging economies will mature by the end of next year. A rising dollar and U.S. borrowing costs have slammed global financial markets – the S&P 500 just had its worst January-April performance since the 1930s, while U.S. bond market volatility and Goldman Sachs (NYSE:GS)’s global financial conditions index are the highest since 2009. The additional problem policymakers face is essentially the irrationality and herd-like behavior of financial markets. Once currency traders sense weakness or fracture, they go for the jugular, and market overshoots can exacerbate underlying economic problems. ECB Executive Board member Isabel Schnabel in a March 17 speech nodded to the danger of allowing policy divergence to widen too much.”A reaction function that differs materially from that of other central banks facing a protracted period of above-target inflation risks amplifying the energy price shock by weighing on the exchange rate, thereby adding to the burden on real household income,” she warned.Chris Marsh, senior advisor to Exante Data and a former economist at the International Monetary Fund, says the wide divergence can only continue for so long before other central banks have to follow the Fed. “If the ECB and others don’t keep up, they end up importing inflation. And inflation is already very high. So to not keep up with the Fed will be very difficult for them,” Marsh said. Graphic: Dollar and G3 yield spreads – https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkmdjzpx/DOLLARSPREADS.png Related columns:Given what followed, emerging markets fear 1994 Fed redux (Reuters, April 25)Pumped-up dollar compounding global liquidity squeeze (Reuters, April 22)Hedge funds’ bullish dollar view distorted by yen outlier (Reuters, April 18)Euro FX reserve demand returns after years of neglect (Reuters, April 13) (The opinions expressed here are those of the author, a columnist for Reuters) (By Jamie McGeever; Editing by Andrea Ricci) More

Starbucks announced Tuesday that it was raising pay and expanding training at corporate-owned locations in the United States. But it said the changes would not apply to the recently unionized stores, or to stores that may be in the process of unionizing, such as those where workers have filed a petition for a union election.On a call with investors to discuss the company’s quarterly earnings, the chief executive, Howard Schultz, said that the spending would bring investments in workers and stores to nearly $1 billion for the fiscal year and that it would help Starbucks keep up with customer traffic.“The investments will enable us to handle the increased demand — and deliver increased profitability — while also delivering an elevated experience to our customers and reducing strain on our partners,” Mr. Schultz said, using the company’s term for employees.The initiative was announced as the union has won initial votes at more than 50 Starbucks stores, including several this week.The pay increases follow a commitment to raise the company’s minimum hourly wage to $15 this summer and will include a raise of at least 5 percent for employees with two to five years of experience, or an increase to 5 percent above the starting wage rate in their market, whichever is greater.Employees with more than five years’ experience will receive a raise of at least 7 percent, or an increase to 10 percent above the starting wage in their market, whichever is greater.The company will also increase pay for store managers.The plans also call for doubling the training hours that new baristas receive, as well as additional training for existing baristas and shift supervisors.In a formal charge filed with the National Labor Relations Board, the union representing the newly unionized Starbucks workers — Workers United, an affiliate of the Service Employees International Union — has accused the company of coercing employees who were voting in a union election by suggesting that it would withhold new benefits if they unionized.The company said it was legally prohibited from unilaterally imposing wage and benefit increases in stores where employees have unionized or will soon vote on unionization. It noted that it must bargain with a union over any wage or benefit changes.But labor law experts said that it could be illegal to withhold wages and benefits from only unionized employees or employees voting on a union.Matthew Bodie, a former lawyer for the labor board who teaches law at Saint Louis University, said the announced pay increases could unlawfully taint the so-called laboratory conditions that are supposed to prevail during a union election by giving employees an incentive not to unionize.“If Starbucks said, ‘Drop the union campaign and you’ll get this wage increase and better benefits,’ that’d clearly be illegal,” Mr. Bodie said by email. “Hard to see how this is that much different in practice.”Mr. Bodie said the pay increases could also amount to a violation of the company’s obligation to bargain in good faith because they suggest an intention to give unionized employees a worse deal than nonunionized employees. “They’d have to at least offer this package to the union,” Mr. Bodie added.Reggie Borges, a Starbucks spokesman, did not say whether the company would make the same proposals announced Tuesday in negotiations with unionized workers but said, “Where Starbucks is required to engage in collective bargaining, Starbucks will always negotiate in good faith.”Starbucks also said it planned to post leaflets in stores to keep employees informed, in which the company says that the outcome of collective bargaining is uncertain and risky. “Through collective bargaining, wages, benefits and working conditions may improve, diminish or stay the same,” says one of the informational sheets to be posted in stores.Such messaging is common among employers facing union campaigns, but labor experts say it is misleading because workers are highly unlikely to see their compensation drop as a result of collective bargaining. More

SEOUL (Reuters) -North Korea’s isolated economy will not be insulated from global economic headwinds caused by the Ukraine war and the COVID-19 lockdowns in China, analysts said, with recently resumed border trade taking a hit and inflation exacerbating food shortages.Strict international sanctions ban or restrict wide categories of North Korean imports and exports, and the country locked down its border for years to prevent COVID-19 outbreaks. Natural disasters such as flooding have also taken a toll on harvests and damaged infrastructure.The trickle of trade and aid that resumed over the land border with China in January probably did not alleviate reported food shortages – and trade was suspended again last week as COVID-19 cases rose in China, analysts said. Satellite imagery shows goods sitting for weeks or months in quarantine at land and sea port facilities. “As food prices in North Korea do often move in tandem with global prices, we’re likely to see current food price hikes mirrored in North Korea as well over time,” said Benjamin Katzeff Silberstein, an economic expert with the U.S.-based Stimson Center.International aid organizations have pulled most of their staff from the country amid the prolonged border shutdowns, and say it is difficult to know exactly how bad the situation is.Last year the U.N. special rapporteur on human rights in North Korea said the country’s most vulnerable people risk starvation during the COVID-19 pandemic.North Korea’s government has acknowledged a tense food situation but has disputed reports that it is failing to provide for residents.The World Food Program estimated that even before the pandemic hit, 11 million people – or more than 40 percent of the population – were undernourished and required humanitarian assistance. BOON FOR ILLICIT COALHigher energy prices globally will most likely help North Korean coal producers, Katzeff Silberstein said.North Korean coal – which is banned from export by United Nations Security Council resolutions – costs a fraction of the global average. But prices still have soared 40% in the past six months, according to Seoul-based Daily NK, which tracks commodities prices in the North. Coal smuggling remained at relatively low levels because of sealed borders, but increased in the second half of last year, according to the latest annual U.N. report by independent sanctions monitors.That may help fill the regime’s coffers, but corresponding increases in domestic coal prices could cause further harm for residents at home. It is challenging to separate effects of the Ukraine crisis from other factors, but North Korea is clearly susceptible to global economic trends, said Christopher Green, a Korea specialist at Leiden University in the Netherlands. “Very broadly, if China entered a recession – which would also be impossible to blame on Ukraine given all the other issues China faces – then exports from North Korea would fall,” he said.’NOT SUSTAINABLE’Leader Kim Jong Un has vowed to improve living standards with major construction projects and rural development, and has held a steady stream of civilian and military displays this year. Kim unveiled thousands of new apartments in Pyongyang last month, and state media reported that some agricultural areas were seeking to improve crop yields by using “homemade manure”, upgrading tractors, and adopting new methods for raising rice.Authorities have also taken steps to protect against floods and droughts, including deploying more pumps, state media reported.Many of these efforts rely on mobilising masses of labourers because of a lack of heavy equipment and supplies, said Lee Jongkyu, a senior fellow at the Korea Development Institute in Seoul.”In the short term perspective, these projects might be effective, but it’s not sustainable for the mid- to long-term perspective,” he said. More

The British Retail Consortium said prices in store chains rose by an annual 2.7% in April, accelerating from a 2.1% rise in the 12 months to March and marking the highest rate since September 2011.”The impact of rising energy prices and the conflict in Ukraine continued to feed through into April’s retail prices,” said BRC chief executive Helen Dickinson.”Non-food products, particularly furniture, electricals and books, have seen the highest rate of inflation since records began,” Dickinson added, citing new supply disruption from China which has enacted more COVID-19 lockdowns recently.Food prices rose by 3.5% year-on-year, the biggest rise in just over nine years.The BRC’s gauge of inflation covers store prices and is not comparable with Britain’s official consumer prices index, a broader gauge of inflation that includes household bills. It hit a 30-year high of 7% in March.The persistence of high inflation is a key concern for Bank of England officials who are expected to raise interest rates on Thursday to 1%, the highest since 2009. Last week, Britain’s longest-running gauge of consumer confidence fell to its second-lowest level since records began nearly 50 years ago, with confidence in the outlook for personal finances falling to a new record low.Supermarket chains Asda and Morrisons said last week they would cut the prices of essential items. “Retailers will continue to do all they can to keep prices down and deliver value for their customers by limiting price rises and expanding their value ranges, but this will put pressure on them to find cost-savings elsewhere,” Dickinson said.”Unfortunately, customers should brace themselves for further price rises and a bumpy road ahead.” More

(Reuters) -Starbucks Corp suspended its guidance for the rest of its fiscal year on Tuesday as sales growth missed Wall Street targets due to China’s tough COVID-19 curbs.Comparable sales in China, where the chain has rapidly expanded in recent years to tap rising coffee consumption, declined 23%, overshadowing 12% growth in North America.China’s strict lockdown measures to meet its zero-COVID policy have upended operations of most global companies that have a significant presence in the Chinese market, including Apple (NASDAQ:AAPL), Gucci-parent Kering (EPA:PRTP) and Taco Bell-owner Yum China.”I remain convinced Starbucks (NASDAQ:SBUX)’ business in China will be eventually larger than our business in the U.S.,” Chief Executive Officer Howard Schultz said in a call with investors.The company expects “even greater impact” to its third-quarter results because of the timing of lockdowns in Shanghai and resurgence of the virus in Beijing and other cities.Even so, demand in its U.S. stores has been “relentless,” Schultz said. Shares rose 5% in extended trading following the results.”Demand and revenue are key drivers,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners. Tigress owns Starbucks stock on behalf of clients and accounts it manages. “Everything is going well in spite of the pandemic and strength in the United States offset the weakness in China.”Global comparable sales at Starbucks, which recently brought Schultz back to lead the company amid a wave of unionization at its U.S stores, rose 7% in the second quarter, while analysts polled by Refinitiv had expected 7.1% growth.UNION APPROACHMore than 50 U.S. cafes have elected to join the Workers United union out of roughly 240 altogether that have sought to hold elections since August. Despite already raising wages since last year, the company will invest an additional $200 million in fiscal 2022 to lift pay for store managers, increase training, revitalize its “Coffee Master” program for baristas and launch an internal app to communicate directly with its 240,000 U.S. employees.The company will also accelerate the rollout of new ovens and espresso machines and speed up maintenance and repairs. And it will update its consumer-facing app to give customers more accurate times to pick up their beverages. The new money will bring total investments in employees and cafes to $1 billion this fiscal year alone. Schultz also said customers will be able to start adding tips to their credit and debit card purchases by late 2022, something that baristas at unionized stores in Buffalo, New York, asked for at the bargaining table.”Federal law prohibits us from promising new wages and benefits at stores involved in union organizing. And by law, we cannot implement unilateral changes at stores that have a union,” Schultz said, adding that “the union contract will not even come close to what Starbucks offers.”Schultz said his latest term as CEO will be temporary and that he and the board hope to name a successor by the autumn, with the aim for that person to take over entirely by the first calendar quarter of 2023. Schultz plans to remain on the board afterwards.Higher costs for labor, freight and commodities ate into North American operating margins, which contracted to 17.1% from 19.3% in the prior year.Total net revenue rose to $7.64 billion from $6.67 billion a year earlier, as the company opened 313 net new stores during the quarter. Analysts had expected $7.59 billion in quarterly revenue. More

Inflation hit a record high 7.5% last month, nearly four times the ECB’s target, and even underlying price growth, which filters out volatile energy and food prices, is now approaching 4%, suggesting that high price growth could linger even if oil prices retreat.”Talking is no longer enough, we need to act,” Handelsblatt quoted Schnabel as saying. “From today’s perspective, a rate increase in July is possible in my view.” A precursor to any rate hike must be the end of bond purchases, and this could come at the end of June, said Schnabel, the ECB’s head of market operations. Conservatives on the ECB’s 25-member Governing Council have been increasingly calling on the central bank to curb its ultra-easy policy to combat inflation, and most see two to three rate hikes before the end of the year.The ECB last raised rates in 2011 and has kept its benchmark deposit rate, now at minus 0.5%, in negative territory since 2014. Markets currently price 97 basis points of rate hikes for the rest of the year, indicating that increases are expected in each policy meeting from July onwards.The ECB will next meet on June 9, when the asset purchases are set to be ended, followed by a meeting on July 21. Schnabel said she did not expect the euro zone to fall into stagflation – a period of zero growth coupled with high inflation – but said the ECB’s main role was to fight off rapid price growth and not to prop up the economy.She added, however, that the ECB would act on any unwarranted increase in the spread of yields between the bloc’s core and periphery. More

BMW Group and Audi have suspended shipments of cars by rail from Germany to China, the biggest market for both carmakers, due to the Ukraine war.Most of the 846,237 vehicles BMW delivered to Chinese customers last year were produced at its joint venture factory in Shenyang, but between 150,000 and 200,000 were imported from Europe. Beginning in September, BMW began dispatching cars bound for western provinces by train, at a pace then set to reach 16,000 a year.“Due to the current geopolitical situation, our train transport on the Silk Road and Trans-Siberian railway have temporarily been switched to alternative routes or transportation modes to ensure planning and supply security,” said BMW. “Vehicles for China and Mongolia are now transported by ship from Bremerhaven.”Volkswagen Group’s Audi brand also confirmed that it has ceased rail shipments. Most of the 701,289 vehicles it delivered in China last year were also locally produced, but sales of imports rose 53 per cent. Based on data from the Netherlands’ Nunner Logistics and shipping information service Drewry Supply Chain Advisors, the cost to send a shipping container to Shanghai on the usual rail route is now about 78 per cent higher than by sea freight. But the train route is usually several days shorter.

BMW’s joint venture with China’s Brilliance Automotive in April opened a new robot-powered phase of its Dadong factory in Shenyang © Courtesy of BMW

Officials in both China and Europe previously promoted the freight services as a geopolitical advance. In recent years, BMW and several of its peers began moving some shipments from ship to rail to lower their carbon footprint as well as to pursue higher speed and schedule reliability, particularly as Covid-19 disrupted port operations in many places.These moves had helped to balance out the steady flow of Chinese imports on the trains. Last year, the Port of Duisburg, a small city in western Germany which is Europe’s top hub for Chinese train traffic, said it was dispatching one fully loaded eastbound train for each one arriving full from China; in 2017, the eastbound trains were just one-third full on average.It is unclear how many other exporters are following the lead of BMW and Audi.Porsche told Nikkei Asia late last year that it was then sending two to three trains to China weekly, each with 82 cars, but did not respond to fresh queries. Computer maker HP, one of the first major multinationals to rely on the trains for westbound shipments, also did not respond to requests for comment.According to the spokesperson for the Port of Duisburg, or Duisport, Europe-China service levels have remained unchanged at around 60 trains a week amid the Ukraine war even as companies’ eastbound bookings have fallen 20 per cent to 30 per cent.“They probably worry about loss of cargo, confiscation and lack of insurance,” he said, referring to the risk Russian authorities could seize shipments in retaliation for sanctions and moves by many insurers to terminate coverage for freight sent through Russia. “Maybe it is also about taking a stand against Russia and Putin,” added the Duisport official.Some European logistics companies are demanding that customers sign a liability waiver before accepting shipments for transit through Russia.To keep traffic flowing, some local authorities in China have begun helping shippers with war insurance cover for freight heading to Europe from their jurisdictions. The operator handling routes from Shanghai has offered a 20 per cent discount on rates.For shipments to Kazakhstan and other Central Asian republics, BMW is now using an alternate train route that runs through the Balkans, Turkey and the Caucasus. This itinerary requires at least one transfer by ship and the route can take almost twice as long as those through Russia. The Duisport official said the port has not observed much capacity expansion on the southern route.A version of this article was first published by Nikkei Asia on April 26 2022. ©2022 Nikkei Inc. All rights reserved.Related storiesChina opens wallet to keep trans-Eurasian express movingRussia’s logistics crippled by sanctions, ensnarling global economyVolkswagen to boost Chinese EV capacity to 1m by 2023: brand CEOStellantis begins reset of joint venture with China’s Dongfeng More

China’s independent refiners have been discreetly buying Russian oil at steep discounts as western countries suspend their own purchases and explore potential embargoes because of the war in Ukraine. An official at a Shandong-based independent refinery said it had not publicly reported deals with Russian oil suppliers since the Ukraine war started in order to avoid attracting scrutiny and being hit by US sanctions. The official added that the refinery had taken over some of the purchase quota for Russian crude from state-owned commodity trading firms, which are seen to represent Beijing and have mostly declined to sign new supply contracts. Many western companies are self-sanctioning or struggling to secure the insurance, shipping or financing needed to buy Russia’s commodity exports, raising expectations that energy-hungry China will step in and buy the unsold barrels. The purchases from China’s independent refineries reveal how some importers are bypassing traditional routes to access cheap Russian oil, helping Beijing maintain a low profile as the west barrages Moscow with sanctions.

Do you have feedback on today’s newsletter? Share them with me at [email protected]. Thanks for reading FirstFT Asia — EmilyFive more stories in the news1. Biden calls on US Supreme Court to uphold Roe vs Wade After the leak of a draft opinion that would overturn Roe vs Wade, US president Joe Biden urged justices to uphold the landmark abortion rights ruling. The Supreme Court confirmed the draft’s authenticity, but said it did not represent its “final position”. The court’s chief justice condemned the leak as a “betrayal”. Do you think people should have the right to an abortion? Tell us what you think in our poll.

2. Report on ‘Ma’ detention sparks Alibaba sell-off Alibaba shares fell as much as 9.4 per cent yesterday following a Chinese state media report that an individual surnamed “Ma” had been detained. Shares finished the day almost 2 per cent lower after state broadcaster CCTV said the individual was not Alibaba founder Jack Ma.3. Hong Kong loosens Covid rules Hong Kong announced an unexpected loosening of coronavirus social distancing restrictions yesterday as the Asian financial centre published data showing its first economic contraction since the start of the pandemic. 4. Tiger Global slumps more than 40% in early 2022 Tiger Global’s flagship hedge fund was dealt a fresh blow in April and is now down more than 40 per cent this year, in the latest sign of how star investors who rode the big rally in tech stocks have been wrongfooted by a sharp pullback.5. Australia kicks off rate rise cycle Government bond markets were volatile on Tuesday after Australia kicked off a busy week for central banks with a bigger than expected rate rise and traders debated the economic consequences of the US Federal Reserve increasing borrowing costs.The day aheadLife Insurance Corporation of India IPO The initial public offering opens to the general public today. Last week the Indian government more than halved the amount it is seeking to raise from the IPO of the state-owned company to less than $3bn after testing investor appetite in jittery markets.US interest rate decision The Federal Reserve will conclude its two-day policy meeting that is expected to result in its first half percentage point rise in interest rates since 2000 and signal more aggressive action to bring decades-high inflation under control. Opinion: The era in which American monetary policy could rely on the “Goldilocks” scenario is receding, writes Edward Luce. The Fed has officially lost the plot.What else we’re readingThe top challenge facing Singapore’s next leader Finance minister Lawrence Wong was confirmed last month as the successor to Lee Hsien Loong. But Wong, who would be only the fourth prime minister in the quasi-authoritarian state’s 56-year history, faces a more difficult task than any of his predecessors in maintaining friendly relations with China and the west.Would a Sinn Féin win open door to a united Ireland? Almost a quarter of a century after the 1998 Good Friday Agreement ended the Troubles — three decades of violence in Northern Ireland in which more than 3,500 people died — polls predict that Sinn Féin, the political wing of the paramilitary IRA, will after Thursday’s election become the biggest party in Northern Ireland for the first time.Watch: The FT’s Ireland correspondent Jude Webber meets the people trying to overcome the physical and social barriers that still shape Northern Ireland’s society, business and the economy.

Ukraine war casts shadow over Transnistria With Kyiv and Moscow trading accusations over responsibility for recent explosions in Transnistria, concerns are rising that the Russia-backed breakaway republic might be dragged into the war in neighbouring Ukraine.Horn of Africa ravaged by drought From northern Kenya to Somalia and swaths of Ethiopia, up to 20mn people could go hungry this year as delayed rains exacerbate what was already the worst drought in four decades. One more dry season could turn what is already a disaster into the worst drought in a century, locals say.How do we buy our first property? On the Money Clinic podcast, FT’s Claer Barrett meets a couple who are midway through their property buying journey. They have lots of questions: Did they get the right kind of mortgage? And what other financial questions should they consider before signing on the dotted line? Listen here to find out.FashionMonday marked the return of America’s biggest, glitziest night of fashion: the Met Gala. The official red-carpet theme was “Gilded Glamour”, a reference to the Gilded Age in late 19th-century America. A-listers turned out in over-the-top tributes to Gilded Age fashion — with some clever modern tweaks. Take a look at the best red carpet looks here.

Actor Blake Lively on the Met red carpet on Monday night in Versace gown and Statue of Liberty-style tiara © FilmMagic More