Economy

Investing.com — EU energy ministers meet to draft plans for an embargo on Russian oil, but crude prices slide, along with the yuan in response to weak Chinese economic data. Berkshire Hathaway’s annual meeting flies the flag for value investing in a troubled market, while the Bored Ape Yacht Club’s auction of NFTs brings the Ethereum blockchain to a temporary halt. Here’s what you need to know in financial markets on Monday, 2nd May.1. West ratchets up pressure on Russia; Lavrov claims Hitler was part-JewishThe U.S. and EU continued to ratchet up pressure on Russia to abandon its invasion of Ukraine, with House Speaker Nancy Pelosi stating during an unannounced visit to Kyiv that the U.S. would support Ukraine “until victory is won.”EU Energy Ministers meet in Brussels later Monday to discuss what is expected to be a phased embargo on Russian oil imports aimed at hobbling the Russian economy still further. Newswire reports suggest that exemptions may be offered to Hungary and Slovakia to ensure the necessary unanimous support. Germany, the pivotal player, has already dropped its previous opposition to such a step.German Chancellor Olaf Scholz is expected to invite the leaders of India, Indonesia, Senegal and South Africa to the upcoming G-7 summit in an attempt to rally emerging markets behind the West’s pressure tactics, amid widespread reluctance to dance to the tune of the U.S. and former colonial powers.Russia appears to have alienated one key player, however. Israel summoned the Russian ambassador and publicly lambasted Foreign Minister Sergey Lavrov after he repeated unsubstantiated urban myths to Italian media, saying that Adolf Hitler had Jewish blood and that Jews themselves were the worst antisemites.2. Yuan falls as Zero COVID policy wreaks havoc with Chinese economyThe scale of the economic damage to China’s economy from its Zero COVID policy become ever more apparent. China’s official manufacturing purchasing managers’ index fell to 47.4 in April, clearly in contraction territory, as a result of the lockdowns in Shanghai, Jilin and elsewhere. The official services PMI fell even more sharply.While reported case numbers continue to edge down in Shanghai, they are unabated in Beijing, which ordered two more rounds of mass testing on Monday. The capital, with its 21 million inhabitants, has already closed gyms and cinemas and banned indoor dining during the three-day holiday, which ends on Wednesday.The news pushed the offshore yuan down by another 0.5%, while industrial metals prices recoiled at the prospect of further disruptive lockdowns. Copper prices fell 2.6% to touch their lowest level since December.3. Stocks set for modest bounce after Friday routU.S. stock markets are set to open with a modest bounce after the horror show on Friday that closed out the worst month for stocks since the depths of the pandemic in 2020.By 6:20 AM ET (1020 GMT). Dow Jones futures were up 150 points, or 0.5%, while S&P 500 futures and Nasdaq 100 futures were up by a similar amount, the Nasdaq contract having shaken off a sharp, unexplained dip earlier in the overnight session.Outperforming a little in premarket trading was Berkshire Hathaway (NYSE:BRKa) stock, after Warren Buffett chaired his company’s annual shareholder meeting at the weekend. Buffett splashed out around $1 billion on U.S. stocks in the first quarter, with Chevron (NYSE:CVX) and Allegheny (NYSE:ATI) standing out as the group’s biggest conviction plays, and Activision Blizzard (NASDAQ:ATVI), the target of some heavy merger arbitrage buying. 4. Bored Apes embarrass EthereumThe Ethereum blockchain ground to a temporary halt as Yuga Labs, the company behind the Bored Apes Yacht Club meme series, raised the equivalent of $320 million in the digital currency through an auction of ‘virtual land’ in Otherside, a planned metaverse game and the latest extension of the Bored Ape franchise. The NFTs were payable in ApeCoin, a digital currency that runs on the Ethereum blockchain.The incident does little to support the argument that Ethereum is better adapted to upscaling than Bitcoin, but the robust underlying demand for Yuga’s intellectual property does at least validate some of the sharp rise in ApeCoin in anticipation of the sale, even though that rally has now largely unwound.By 6:30 AM ET (1030 GMT), ApeCoin ($APE) was trading down 11% on the day at $15.8008, down over 41% from its peak last week, but still up by a similar amount from its launch just over a year ago.5. Oil falls as Chinese data set gloomy tone for OPEC+ meetingCrude oil prices fell sharply in response to the economic data out of China, with the pessimism amplified by perceptions that the country’s leadership is too politically invested in the Zero COVID policy to change course.By 6:25 AM ET, U.S. crude futures were down 3.4% at $101.23 a barrel, while Brent futures were down 2.8% at $104.31 a barrel.The prospect of an EU oil embargo has now been largely priced in, with focus turning to Thursday’s meeting of OPEC and non-OPEC energy ministers to discuss production levels. Russia’s inability to produce its full quota under the bloc’s agreement is raising the incentive for other producers to increase their output – insofar as they can. Libya, an OPEC member not bound by production quotas, has seen its output drop back to 0.5 million barrels a day due to fresh instability between warring factions in recent days. More

COLOMBO (Reuters) -Sri Lanka has extended a credit line with India by $200 million in order to procure emergency fuel stocks, the country’s power and energy minister said on Monday, with four shipments due to arrive in May.Colombo was also in talks with New Delhi over extending the credit line by an additional $500 million, minister Kanchana Wijesekera told a news conference.Hit hard by the pandemic and short of revenue after Gotabaya Rajapaksa’s government imposed steep tax cuts, the island nation is now also critically short of foreign exchange and has approached the International Monetary Fund for an emergency bailout.Rampant inflation and shortages of imported food, fuel and medicines has led to weeks of sporadically violent protests.Sri Lanka has used $400 million, on multiple shipments in April, of the $500 million credit line extended by India earlier this year, Wijesekera said. Two fuel shipments will be paid for from the remaining funds in May.”The Indian credit line was extended by $200 million recently and this will be utilised for four shipments in May. Talks are continuing for a further $500 million with India so in total the credit line will be $1.2 billion,” Wijesekera said.However, Sri Lanka is still facing payment challenges for fuel imports with the state-run Ceylon Petroleum Corporation (CPC) owing $235 million for shipments already received, while about $500 million more will be needed to pay for letters of credit maturing over the next six weeks, he added.Sri Lanka will also need dollars to pay for crude oil shipments to supplement imports from India.”We have made procurement plans till June but we still need to resolve how to find sufficient amounts of foreign exchange to make payments,” Wijesekera said. More

PHOENIX/COMMERCE CITY, Colo. (Reuters) – Ricardo Aguirre sits near his two taco trucks and laments the soaring cost of tomatoes, onions, meat and cilantro, which have doubled in price in recent months, hammering his Phoenix-based catering business.    Aguirre, 43, usually votes for the Democratic Party. But with inflation hitting a 40-year high in February he has a stark warning for Democrats as they seek to keep control of the U.S. Congress in November’s elections.     “If the Republican Party has something better to offer us, I will vote Republican,” said Aguirre. Republicans, he believes, are generally better economic stewards who could have more success in reducing prices.    Aguirre runs Tamales y Tacos Puebla from the heavily Hispanic Alhambra neighborhood in Phoenix, where talk of record-high gas and food prices was dominating conversations in front gardens, stores and restaurants when Reuters visited.    Of 35 Hispanic voters Reuters spoke to in two toss-up races in Arizona and Colorado, 20 – including Aguirre – said soaring inflation is causing them to seriously consider voting for Republicans. The majority of those said they usually vote Democrat.    Many said they don’t necessarily blame Democrats but have lost faith in their ability to solve inflation and are increasingly willing to let Republicans try.     Even a small loss of support among Hispanics – a key component of the Democratic coalition of voters that brought President Joe Biden to power – could mean the loss of the House of Representatives and possibly the Senate for Democrats.    Four of the top 15 congressional targets for Republicans are races with heavy Mexican-American populations, according to Mike Madrid, a Republican strategist based in California.    Inflation is now the top worry among Hispanic voters, according to an Axios-Ipsos poll released in March. A Quinnipiac University poll published on April 13 found that just 26% of Hispanic voters approved of Biden’s job performance, the lowest mark of any demographic.That could be a further sign of what pollsters say is a long-term erosion of support for Democrats among Latinos.While Biden won 61% of Latino voters in the 2020 presidential election, there was an 8% percent swing toward his Republican opponent, Donald Trump, Democratic polling firm Catalist found in 2021.Hispanic voters are a large and diverse segment of the electorate and are not uniform in how they vote. In Florida for example, many are Cuban-Americans who tilt more conservative. In the American Midwest and West, a majority are of Mexican origin, have traditionally tended to vote Democrat, and live in swing states, including Arizona.    ‘I’M WILLING TO CHANGE MY VOTE’    Democratic U.S. Senator Mark Kelly is facing a tough re-election in Arizona, where Biden won by just over 10,000 votes and Kelly by just 2.4 percentage points in 2020. Republicans see the state, which is 32% Latino, as a top pick-up opportunity in their bid to regain control of the Senate.    In the Maryvale district of Phoenix, retiree Jose L. Mendez, 66, stands with his wife Maria, 63, next to a shopping cart filled with rice, pinto beans, tacos and kitchen roll.    Mendez, who has voted Democratic every year since 1988, had driven 45 minutes to hunt for bargains. He thinks Democratic spending has partly caused rising prices and thinks Republicans might do a better job.     “Inflation has affected us a lot. I’m willing to change my vote,” he said.    Of the 18 Hispanic voters in Phoenix who spoke to Reuters, all said inflation was by far the most pressing issue for them. Record-high gas prices, and a doubling and tripling in the cost of food, was putting enormous strain on family budgets.”Groceries skyrocketing and gas prices rising!” blared a Republican ad against Kelly on Spanish-language television in Arizona in March.Not all are changing their vote. Daniella Villa, 36, arriving at El Super grocery story in Maryvale, said inflation was hard and gas prices were “crazy,” but she will still back Kelly and the Democrats this November.    Kelly has urged the Biden administration to take more steps to lower gas prices and introduced a Senate bill to temporarily suspend the federal gas tax.     A White House spokesperson blamed high prices largely on Russia’s invasion of Ukraine and said Latino families had benefited from Biden’s 2021 $1.9 trillion American Rescue Plan Act, which expanded the child tax credit, sent direct cash payments to most Americans, and bailed out businesses.    “President Biden knows how higher prices can impact a family budget,” the spokesperson said. “This is why he is fighting every day to bring down gas prices and lowering kitchen table costs that are squeezing Latino families across the country.”    Most economists say inflation is caused by a number of factors, largely beyond Biden’s control. Global supply chain blockages have been a major cause of price hikes, while oil prices were spiking even before the war in Ukraine. Many economists also say the Biden administration’s spending on COVID relief has fueled rising prices, but note that failure to bail out the economy would have led to a recession.A spokesperson for the Republican National Committee said the party will be highlighting what they call “reckless spending” by Democrats as a factor in rising inflation.    They will tell voters that Republican-controlled states such as Florida and Texas that kept schools and businesses open during the pandemic will be used as a role model for Hispanic voters who they say want to work and earn higher wages.    DANGEROUS TIMES FOR DEMOCRATS    Jaime Regalado, professor of political science at California State University, Los Angeles, and an expert on Hispanic voting patterns, said inflation was a nightmare issue for Democrats.    “We are coming into a midterm cycle that rarely favors the party in power, even in better times. Throw inflation into the picture, without knowing if it’s going to end any time soon, it shows the peril Democrats have in 2022 with Latino voters,” he said.    Hispanics comprise nearly 39% of the electorate in Colorado’s 8th congressional district, north of Denver, a newly created House seat that is evenly split between registered Democrats and Republicans.     In the district’s town of Platteville, Daniela Castro Tobar, 19, was working the front of Rosalee’s, her family’s restaurant. She considers herself a liberal and voted for Biden in 2020. But the economic pain inflation is causing her family is making her reconsider her support for Democrats.    “I’m very open to either party right now. We’re all suffering right now, we’re all dealing with inflation,” Castro said.Americans of all backgrounds say inflation is a concern. But a 2021 Bank of America (NYSE:BAC) survey found that people of color, especially Black and Latino households, spend proportionally more of their income on staples prone to price hikes such as food and gas and that inflation hits them hardest.    Julian Verdugo was still dressed in his dusty oilfield work clothes when he took over behind the counter in the small Mexican sweets shop his family owns in Commerce City, a heavily Latino area near Platteville.    As the 24-year-old helped a customer decide what treats she should stock up on for a party, he explained why he was considering casting his ballot for Republicans, breaking with family tradition.     “I was raised as a Democrat. But then I started working in the oil and gas industry, and I realized the Democrats are really against it,” he said. “Now, with the inflation of fuel, we’ve had to raise prices in this candy shop three times in the last three months because our products are shipped from Mexico.”    Chuck Rocha, a Democratic strategist involved in Latino outreach efforts in the 8th district, said he sees the district as a 2020 bellwether because of its large Hispanic population.    “If Democrats lose Colorado 8 it’s almost guaranteed that they lose their majority in the Congress,” Rocha said. “Because if we can’t win a 50-50 seat in Colorado that’s 40% Latino, then they’re going to lose seats all over the country.” More

The agreement, details of which have yet to be disclosed, would facilitate transfers of defence hardware and technology from Japan to Thailand, which has one of the region’s biggest and most equipped militaries.Noriyuki Shikata, Japan’s Cabinet Secretary for Public Affairs, told reporters the two leaders were also expected to sign an agreement to improve customs procedures in Thailand, where Japan is the biggest investor, while Tokyo would extend a 50 billion yen ($384.79 million) loan to support Thailand’s COVID mitigation efforts.Southeast Asia has for decades been a strategic region for Japan, hosting some of the biggest names in industry, from infrastructure, engineering and industrial zones to the manufacturing of vehicles and electronics. The region remains a key battleground between the United States, Japan’s close ally, and its closest rival China, Southeast Asia’s biggest trade partner. Kishida was due to meet Thai counterpart Prayuth Chan-ocha late afternoon on Monday, before drawing the curtain on a short tour that saw stops in Vietnam and Indonesia, where Japan is a also a major investor.Shikata said Kishida would discuss with Prayuth the position of Southeast Asian countries on the conflict in Ukraine and express Japan’s support for the region’s efforts to address the crisis in Myanmar following a coup last year.($1 = 129.9400 yen)(This story refiles to correct name order of Japanese official in paragraph 3, 7). More

(Reuters) – In mid-April, months into an increasingly frustrating house hunt, Harsh Grewal and his wife settled on a place in a San Francisco suburb and were prepping a bid, above the listed price so they’d have a chance of besting other offers in one of the nation’s hottest housing markets. Then he checked his phone and saw several alerts, all touting reduced prices for other homes they’d been tracking. The Grewals pulled their offer and put their search on ice in hopes it was a sign the market was finally cooling. “I want to see where this goes, and where the dust settles,” Grewal said. That’s exactly what Federal Reserve policymakers hope to see more of as they raise interest rates to bring down 40-year high inflation.One leg of their effort is taking the heat out of the housing market, where low borrowing costs introduced to cushion the economy from the COVID-19 pandemic helped fuel a 35% rise in home prices over the past two years. While house prices are not part of the inflation indexes the Fed tracks, they do feed into other factors – such as rents – that are influential to inflation.Rising rates mean borrowing for a house is suddenly more expensive. The 10-year Treasury note yield, a benchmark for mortgage rates, has risen on expectations of swift Fed rate hikes. The average 30-year-fixed home loan rate is now 5.37%, up more than 2 percentage points since the year began, according to the Mortgage Bankers Association.So buyers of a typical existing home, which went for $375,000 in March, will pay $440 more each month than they would have in December, if they put 20% down and borrow the rest at a fixed rate for a 30-year term. Higher interest rates account for most of that. Meanwhile inflation is also driving up grocery bills and gasoline costs.”The housing market is definitely out of whack,” said Fed Governor Christopher Waller, who recounted last month how he sold his St. Louis home to an all-cash buyer with no inspection. “We’ll see how the interest rates start cooling things off going forward.” New homebuyers face sharply higher costs https://graphics.reuters.com/USA-FED/HOUSING/jnvwerjrevw/chart.png ‘AN INFLECTION POINT’The last time mortgage rates rose this fast was in the spring of 1994. Total home sales fell 20% as the Fed lifted rates, and home price growth slowed. Economists predict a sales drop and slowing price growth this time, too, perhaps to a roughly 5% annual rate by year end. But an unprecedented collection of factors, including record-low housing stock, unusually high household savings, an extremely tight job market and increased worker mobility are creating crosscurrents that could blow that forecast off course.Sales of previously owned homes were the lowest in nearly two years in March, according to the National Association of Realtors. Mortgage applications are down as well. List-price drops like those the Grewals noticed are more common, accounting for 13% of homes for sale in the four weeks from mid-March to mid-April, according to real estate company Redfin (NASDAQ:RDFN), up from 9% a year earlier.At the same time, mortgage applications remain above pre-COVID levels, and house prices hit a record as homes were snatched up typically within 17 days of listing. Some of that could be a last-gasp effort of buyers, particularly those with pre-approved financing, racing to purchase homes before rates go even higher.”The next couple of months things are going to heat up until we get to an inflection point,” probably this summer, Zillow Economist Nicole Bachaud said. The soaring cost of home loans https://graphics.reuters.com/USA-FED/HOUSING/byvrjnrlxve/chart.png THIS TIME IS DIFFERENT?The correlation between house price growth and mortgage rates, while still strong, has been declining though over the past 20 years, said Anne Thompson, a lecturer and research scientist at MIT who recently co-authored a paper with Yale University’s Robert Shiller arguing that soaring prices do not appear to reflect a bubble.”I wouldn’t even necessarily call it a cooling, I’d call it a flattening of rates of appreciation, but not this year because there are still relatively low interest rates,” Thompson said, noting that mortgage rates have historically been much higher.Many regional markets remain very hot, particularly in the South, helped by buyers having more flexibility on where they work as well as strong wage gains amid a shortage of workers. Those factors may also bolster housing sales even if higher rates take some of the steam out of price rises. Rob Lubow, 35, and his husband worked remotely from their two-bedroom Austin, Texas, rental apartment until late last year when Lubow’s firm began calling employees back to the office. In January Lubow began looking for a new job that would let him work from home permanently. A month later he had one – and a 35% salary increase.Austin home prices had climbed way above their $300,000 maximum reach. The median home price was $624,000 in March, up from $415,000 two years earlier, data from the Austin Board of Realtors shows.Their remote-only jobs meant mobility, so last month they bought a three-bedroom house in Kingston, New York, for just under their budget. The median home price there is $280,000, according to Redfin, up almost 20% since last year.”If people respond to higher housing costs by moving to more affordable places, that could lead to more home sales,” Redfin Chief Economist Daryl Fairweather said. A near-record low number of homes are for sale https://graphics.reuters.com/USA-ECONOMY/dwpkryrmavm/chart.png ‘INSANE’Record low inventory over the past couple of years also means there is plenty of pent-up demand, particularly among Millennials ready to set up a home, whose share of purchases has been growing. But that is bumping up against Boomers, discouraged from downsizing by the rising costs of alternative housing, staying put and keeping the larger homes desired by younger people off the market at a time when too-few new homes are being built. Meanwhile, data from the Realtors group shows the share of all-cash sales was the largest in nearly eight years in March, a sign supply is being gobbled up by institutional investors or second-home buyers. Mike Wang, 33, works at a vitamin manufacturer and rents a Los Angeles apartment. He’s had a number of promotions and now makes 50% more than he did three years ago. “Even with making more money than I could have hoped for when I was 20-something, house prices have far outpaced that – which when I think about that I’m like, holy cow, that is insane.” So Wang says he sees little choice but to wait in the hope prices slow as predicted and he can catch up enough to buy a house in a few years. With so many people his age wanting to buy homes, and so few houses being built, he’s not convinced it will happen that way. “Having been surprised in the past, I wouldn’t be surprised to see things buck all the analyst forecasts,” Wang said. More

“The risk is rising that inflation expectations drift away from central bank inflation targets, prompting a more aggressive tightening response from policy makers,” Okamura said in a written interview with Bloomberg News last week.Federal Reserve Chair Jerome Powell is widely expected to deliver a half-percentage point interest-rate increase this week to tackle the fastest inflation in decades. Okamura’s comments suggest other major central banks may still be underestimating the risk that costs keep rising beyond their comfort zones. “They must keep their finger on the pulse of the economy and adjust policy as needed,” said Okamura. “As they tighten, major central banks should communicate clearly, mindful of spillover risks to vulnerable emerging, and developing economies.”The deputy managing director, who took on his role in December after decades of serving in Japan’s finance ministry, covered a range of issues in the written interview. Here are excerpts:Q: What are the biggest risks facing the world economy?“We continue to stress that the most important priority for the global economy is to end the war in Ukraine. The war has a direct impact on many of the other challenges we face, such as high debt levels, food security, and inflation.”Q: How are you viewing the war in Ukraine and its possibility to further damage the global economy? “Aside from the human toll, the conflict is resulting in dramatic and far‑reaching economic consequences, with spillovers to the region and the world. The war will slow economic growth and increase inflation. Q: How concerned are you about a global move toward de-globalization and the repatriation of production centers?“We should recognize that globalization has brought significant economic benefits, particularly to the developing world but also by lowering costs and increasing efficiency for all countries. But there is clearly a backlash underway, with a rise in protectionism and now rising concerns brought on by disruptions to supply chains due to war and the pandemic.”“We are concerned about countries dividing into blocs, which would be detrimental to global prosperity.”Q: Are governments spending appropriately to aid the recovery from the pandemic? What are the areas that need more support?“The international community should recognize that its pandemic financing addresses a systemic risk to the global economy, not just the development need of a particular country. Accordingly, it should allocate additional funding to fight pandemics and strengthen health systems both domestically and overseas. This will require about $15 billion in grants this year and $10 billion annually after that.”©2022 Bloomberg L.P. More

The US has held top-level talks with the UK on how the two nations can co-operate more closely to reduce the chances of war with China over Taiwan. It is the first time the countries have explored conflict contingency plans.Kurt Campbell, the White House Indo-Pacific co-ordinator, and Laura Rosenberger, the top National Security Council China official, held a meeting on Taiwan with UK representatives in early March, according to people familiar with the situation. It is said to have spanned everything from how the UK could do more diplomatically with Taipei to what role the UK would play if the US ended up in a war with China over Taiwan. People familiar with the stepped-up engagement said the US wanted to boost co-operation with European allies, such as the UK, to raise awareness about what the administration regards as Beijing’s increasingly assertive attitude towards Taiwan, which it considers part of China. One UK official said the restricted meeting was the “highest-level” and “most significant” discussion between the countries on Taiwan to date.Thanks for reading FirstFT Americas. Here’s the rest of today’s news.Five more stories in the news1. Pelosi visits Ukraine and Poland Nancy Pelosi, Speaker of the US House of Representatives, met President Volodymyr Zelensky in Kyiv this weekend. Pelosi, who was leading a congressional delegation, became the highest-ranking US official to visit the Ukrainian capital since Russia launched its invasion in February, and released a statement saying “America stands firmly with Ukraine”. Today Pelosi met Polish president Andrzej Duda to discuss continued support for the beleaguered country.2. EU steps up action on Russian oil sanctions Germany has called for a phased-in ban on Russian oil imports to the EU, stepping up pressure on Brussels to find a deal between divided member states ahead of a crunch week for the bloc’s policy on Russian energy. The EU is discussing its toughest sanctions yet on Moscow this week, so Berlin’s willingness to speed up its timetable increases the likelihood of a full EU oil embargo. 3. Republicans warm to climate change Recognising their bad reputation on climate change, a group of US House Republicans has formed the Conservative Climate Caucus — but the group has work to do to change climate-conscious voters’ perceptions about their party, which has resisted government action on global warming and opposed limits on emissions. 4. ArcelorMittal celebrates green hydrogen milestone The world’s second-largest steelmaker tested the use of green hydrogen to reduce iron ore at one of its industrial sites in Contrecoeur in Quebec, in what it claims is a milestone for the industry. The initiative marks another step in the global effort to improve the green credentials of an industry that accounts for 7 to 9 per cent of all direct fossil fuel emissions. 5. Beijing teeters on edge of Covid lockdown The coronavirus pandemic is creeping closer to the halls of power in Beijing as authorities rush to avoid an uncontrolled Shanghai-style Omicron outbreak in China’s capital. Beijing is tightening coronavirus restrictions after reporting 41 cases yesterday. Officials in the city of 22mn closed gyms and cinemas and raised Covid-19 testing requirements in an effort to avoid the situation in Shanghai, where tens of millions have been restricted to their apartments.The day aheadEconomic data S&P Global releases purchasing managers’ indices for the eurozone, Italy, France, Germany and the US, where April preliminary data showed economic growth slowing. The US also has construction spending figures for March and the Institute for Supply Management issues its April manufacturing activity index.Corporate earnings Italian vehicle maker Piaggio publishes first-quarter financials. “The revenue trend doesn’t seem to explain why the share price is down,” Simply Wall Street noted last week.What else we’re reading How bad can the global stagflation shock of 2022 get? Only last year, many economists were expecting 2022 to be a period of strong economic rebound, but fast forward a few months and stagflation — a painful mix of high prices and low growth — is on the cards. The prospect strikes fear into policymakers because there are few monetary tools to address it and, according to Anatole Kaletsky, economist at the investment research company Gavekal, it is the US that faces “by far [the] greatest risk of dramatic inflation and wage-price spirals”.

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Musk’s Twitter deal rewards risk-taking at Morgan Stanley When Twitter’s board agreed to sell the company to Elon Musk last week, one Wall Street bank was at the centre of the deal: Morgan Stanley. Its role in the $44bn bid caps a years-long effort to cultivate ties with the world’s richest person. But why did Morgan Stanley extend financial firepower to Musk that goes beyond anything provided to other private clients?If you are interested in what’s happening with Twitter, do join us on May 4 for our subscriber-only Elon Musk Twitter Takeover Webinar. Register here for our free virtual briefing on the consequences of the world’s richest man acquiring the social media platform he describes as the “bedrock of a functioning democracy”.Carbon credit demand creates boom time for brokers Demand for carbon credits has exploded as corporate buyers look to burnish their environmental credentials. Mark Carney, UN climate envoy, told the COP26 summit that offset schemes could result in “$150bn going to . . . the world’s emerging and developing economies”. But the opaque and unregulated market has drawn accusations of resellers cashing in at the expense of environmental causes. Investors face volatility as demand stalls amid supply disruptions Central banks belatedly recognise the problem with markets is not one of weak demand but, rather, insufficient supply, argues Mohamed El-Erian. Looking forward, an even more complicated possibility is taking shape: that of stalling demand in the midst of persistent supply disruptions.Business cannot brush off ESG as a mere PR challenge ESG — environmental, social and governance — is everywhere, notes Stefan Stern. You cannot discuss a business’s operations or prospects without the initials ESG cropping up. Sceptical (and seasoned) observers of business know to be on alert when another Three Letter Acronym (TLA) achieves widespread popularity. Do sign up for Moral Money, our award-winning newsletter on ESG, which our expert team send out three times a week.The sound of silencePilita Clark explains why it’s more than OK to be quiet in meetings. More

The Japanese yen, adjusted for prices, is at its lowest level since the early 1970s. In times gone by, such weakness would have prompted furious recriminations between Tokyo and western capitals, which lived in fear of cheap Japanese imports. No longer. Today, the weakness of the yen prompts discontent inside Japan, not without. There are demands for the Bank of Japan to raise interest rates. This would be a mistake. Although painful in the short-term, the current bout of yen weakness is less a problem than a fresh opportunity for the BoJ to achieve its goal of many decades: reflation of the Japanese economy.When the BoJ doubled down last week on its pledge to keep ten-year bond yields close to zero per cent, the market reaction was immediate, with the yen falling through ¥130 against the dollar. Japan’s currency started to slide in 2021 as it became apparent the US Federal Reserve would raise interest rates, creating a widening gap in yields across the Pacific. The decline accelerated in March after Russia’s invasion of Ukraine caused a jump in oil and gas prices. That was a nasty shock to the terms of trade for commodity-importing Japan.A falling yen, combined with rising oil prices, leads to painful inflation in Japan. Households notice a rise in the price of petrol at the pumps and food in the supermarkets. But this reflects weakness and not strength in the Japanese economy. Wages are hardly rising at all. The BoJ thus believes, correctly, that its economy still needs support. “Inflation, driven by cost-push alone, won’t be sustainable. Rather, we need to see an economic recovery . . . to boost consumption and capital expenditure, and lead to a moderate increase in trend inflation,” said governor Haruhiko Kuroda at his post-meeting press conference. “We’re not seeing conditions fall in place now for that to happen.”The question is whether low rates and a falling yen will prove acceptable to the government of prime minister Fumio Kishida, who must contest upper house elections in a few months, and is under pressure to do something about the squeeze on living standards. Kishida broadly has two options. He could intervene in currency markets to support the yen. Or he could seek to replace Kuroda with a more hawkish figure when the governor’s term expires next year.Yen intervention falls into the category of policies that would do little good and little harm. Japan holds $1.2tn in foreign currency reserves, which it amassed during past interventions when the yen was too strong rather than too weak. These reserves serve little purpose. Selling some while the yen is weak and using the proceeds to retire public debt would not be a crazy thing to do. Most of the available evidence suggests that such an intervention, sterilised so it did not affect the domestic money supply, would have little medium-term impact on the exchange rate.Pushing for a hawkish turn at the BoJ, by contrast, would do a great deal of harm and almost no good. With Japan’s economy struggling to recover after Covid-19, and no domestically-generated inflation to speak of, the last thing its economy needs is to make credit more costly. Rather, the weak yen is a chance to stimulate exports — even if Japan is no longer the currency-sensitive export machine it once was — and get inflation closer to the BoJ’s 2 per cent target. “A weak yen is positive for Japan’s economy as a whole,” Kuroda argued. In this, he is correct.The rest of the world used to worry about cheap Japanese exports. If the fall in the yen now makes Japanese exports cheaper, then it will be exporting deflation: which is exactly what an inflation-hit US wants right now. A weak Japanese currency therefore suits economies on both sides of the Pacific. The BoJ should stay the course and let the yen slide. More