Economy

(Reuters) – Russia’s foreign ministry on Saturday said it expected commodity flows with China to grow and trade with Beijing to reach $200 billion by 2024, the Interfax news agency reported, as Moscow looks east in the face of growing western isolation. The ministry said Chinese companies must be wary of the risk secondary sanctions pose, but said Beijing was ready to expand its cooperation with Moscow, Interfax reported. More

Dozens of countries have thrown up trade barriers in the past two months to protect scarce supplies of food and commodities, but experts say the policies will only exacerbate a global food crisis.WASHINGTON — Ukraine has limited exports of sunflower oil, wheat, oats and cattle in an attempt to protect its war-torn economy. Russia has banned sales of fertilizer, sugar and grains to other nations.Indonesia, which produces more than half the world’s palm oil, has halted outgoing shipments. Turkey has stopped exports of butter, beef, lamb, goats, maize and vegetable oils.Russia’s invasion of Ukraine has unleashed a new wave of protectionism as governments, desperate to secure food and other commodities for their citizens amid shortages and rising prices, erect new barriers to stop exports at their borders.The measures are often well intended. But like the panic-buying that stripped grocery store shelves at various moments of the pandemic, the current wave of protectionism will only compound the problems that governments are trying to mitigate, trade experts warn.Export restrictions are making grains, oils, meat and fertilizer — already at record prices — more expensive and even harder to come by. That is placing an even greater burden on the world’s poor, who are paying an ever-larger share of their income for food, increasing the risk of social unrest in poorer countries struggling with food insecurity.Since the beginning of the year, countries have imposed a total of 47 export curbs on food and fertilizers — with 43 of those put in place since the invasion of Ukraine in late February, according to tracking by Simon Evenett, a professor of international trade and economic development at the University of St. Gallen.“Before the invasion, there’s a very small number of attempts to try and restrict exports of food and fertilizers,” Mr. Evenett said. “After the invasion you see a huge uptick.”The cascade of new trade barriers comes as the war in Ukraine, and the sanctions imposed by the West on Russia, are further straining supply chains that were already in disarray from the pandemic. Russia is the world’s largest exporter of wheat, pig iron, nickel and natural gas, and a major supplier of coal, crude oil and fertilizer. Ukraine is the world’s largest exporter of sunflower seed oil and a significant exporter of wheat, pig iron, maize and barley.With countries facing severe threats to supplies of basic goods, many policymakers have quickly dropped the language of open markets and begun advocating a more protective approach. Recommendations range from creating secure supply chains for certain critical materials in friendly countries to blocking exports and “reshoring” foreign factories, bringing operations back to their home countries.In a speech last week, Janet L. Yellen, the Treasury secretary, said the pandemic and the war had revealed that American supply chains, while efficient, were neither secure nor resilient. While cautioning against “a fully protectionist direction,” she said the United States should work to reorient its trade relationships toward a large group of “trusted partners,” even if it meant somewhat higher costs for businesses and consumers.Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said in a speech on Wednesday that the war had “justifiably” added to questions about economic interdependence. But she urged countries not to draw the wrong conclusions about the global trading system, saying it had helped drive global growth and provided countries with important goods even during the pandemic.“While it is true that global supply chains can be prone to disruptions, trade is also a source of resilience,” she said.The W.T.O. has argued against export bans since the early days of the pandemic, when countries including the United States began throwing up restrictions on exporting masks and medical goods and removed them only gradually.Now, the Russian invasion of Ukraine has triggered a similar wave of bans focused on food. “It’s like déjà vu all over again,” Mr. Evenett said.Protectionist measures have cascaded from country to country in a manner that is particularly evident when it comes to wheat. Russia and Ukraine export more than a quarter of the world’s wheat, feeding billions of people in the form of bread, pasta and packaged foods.Mr. Evenett said the current wave of trade barriers on wheat had begun as the war’s protagonists, Russia and Belarus, clamped down on exports. The countries that lie along a major trading route for Ukrainian wheat, including Moldova, Serbia and Hungary, then began restricting their wheat exports. Finally, major importers with food security concerns, like Lebanon, Algeria and Egypt, put their own bans into effect.Mr. Evenett said the dynamic was “still unfolding” and likely to get worse in the months to come. Ukraine’s summer growing season for wheat is being disrupted as fighting keeps farmers away from their fields and pulls workers off to war. And grocery stores in Spain, Greece and Britain are already introducing restrictions on the amount of cereals or oil people can buy.“We’re already feeling the pinch in Europe of limited supplies of these key crops,” he said.Several other consequential export bans on food are unrelated to the war, but they will still play into the global dynamic of rising prices.A palm oil processing plant in Indonesia’s Riau Province. The country has halted outgoing shipments of palm oil, a key ingredient in packaged food.Kemal Jufri for The New York TimesChina began ordering its firms to stop selling fertilizer to other countries last summer, in order to preserve supplies at home, Chad Bown, a senior fellow at the Peterson Institute for International Economics, and Yilin Wang, a research analyst at the institute, wrote in a recent blog post. Now that Russia has also cut off exports of fertilizer, China’s ban will be even more harmful.“China’s decision to take fertilizer supplies off world markets to ensure its own food security only pushes the problem onto others,” they wrote, adding that “China’s ongoing export restrictions could hardly come at a worse time.”Indonesia’s restrictions on palm oil, a key ingredient in packaged foods, detergent and cosmetics, are in line with similar bans the country placed on exporting the product before the war in an attempt to keep the price of oil affordable for Indonesian households.Those measures will add to skyrocketing prices for vegetable oils, driven by a disruption in the supply from Ukraine, the world’s largest producer of sunflower oil.Governments that put these restrictions in place often argue that their duty is to put the needs of their own citizens first, and the W.T.O.’s rules allow countries to impose temporary measures for national security or safety. But the measures can easily backfire, helping to push up global prices further.Price increases for food have been felt particularly keenly in poorer countries in the Middle East and sub-Saharan Africa, which depend on imported food.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

When asked most of last year about price inflation’s sudden surge, central bankers often responded using the adjective “transitory”. Not any more.Confirming that thesis is all but dead, the European Central Bank reported on Friday that consumer prices climbed in April by 7.5 per cent. That was the sixth consecutive new high recorded in Euroland. In the US and UK inflation was 8.5 per cent and 7 per cent respectively in March.Moreover, a day previously the ECB issued a detailed mea culpa on the inaccuracy of its inflation predictions over the past two years. Its forecasts especially deviated from reality during the final quarter of 2021 when energy prices accelerated upwards. As the EU seriously considers an import ban on Russian oil, the risk for further forecast errors increases.The ECB has underestimated inflation for the first quarter by a whopping 2 percentage points. Consider its forecasts made a year ago and that tracking error more than doubles to 5 percentage points.Lex claims no high accuracy in forecasting either and, to be fair, the ECB were not alone. The Bank of England and the Federal Reserve both similarly miscalculated in their own respective forecasts. As the graph reveals, the ECB’s record on price predictions is patchy.Blame any breakdown in predictive power on the erratic behaviour of financial markets. Even before the war in Ukraine, European natural gas prices in Europe had undergone seemingly puzzling surges. Growing correlation between wholesale and consumer prices suggests increases are more quickly passed on to end users, and in turn inflation measures.Market expectations play a big role in inflation forecasting. From both surveys and financial indicators (such as interest rate movements) flow central bank predictions. It is possible that they are skewed by a decade of negligible inflation, reinforced by dovish central bank messaging. If so, inflation rates, which many believe have peaked, will continue to shoot past central bank predictions.The Lex team is interested in hearing more from readers. Please tell us what you think of central bank inflation forecasting in the comments section below. More

A read-out on China’s economic health is due as well, while an unprecedented Russian sovereign debt default looms. And did anyone say dollar? Here’s a look at the week ahead in markets from Tom Westbrook in Singapore, Ira Iosebashvili in New York, Dhara Ranasinghe, Sujata Rao and Karin Strohecker in London.1/THE HAWKS FLYIncreasingly hawkish Fed rhetoric has sparked nasty sell-offs in stock and bond markets, and on Wednesday we will see just how aggressive the central bank plans to get over coming months. The Fed has flagged a 50 basis-point interest rate rise on May 4, and investors expect a hefty 240 bps of monetary tightening in 2022. Many reckon the Fed will continue to surprise on the hawkish side, as it fights to tamp down the worst inflation in four decades. [L2N2WK2GX]Markets will also focus on the Fed’s plans for its nearly $9 trillion balance sheet, which it could start unwinding as early as May. Graphic: Fed & stocks – https://fingfx.thomsonreuters.com/gfx/mkt/gkplgkbayvb/Pasted%20image%201651081055454.png 2/FOUR IN A ROWThe Bank of England’s meeting, a day after the Fed, is tipped to lift interest rates for a fourth time in a row, the first time it would have done that since 1997.BoE boss Andrew Bailey says the bank is treading a “very tight line” between curbing inflation, which at 7% is more than three times its target, and avoiding a recession.A quarter point hike to 1% would meet a precondition for the BoE to start actively selling bonds it holds. A big question for markets is when these sales will start; estimates range from June to well into 2023.Active bond sales would tighten monetary conditions but could hurt a faltering economy and no major central bank has yet started the process. Graphic: Bank of England gilt holdings – https://graphics.reuters.com/BRITAIN-BOE/klvykldlzvg/chart.png 3/DOLLAR THE DESTROYERApril is said to be the cruellest month and it’s certainly been so for anyone on the wrong side of the dollar trade. A 5% rise in the dollar index, driven by safe-haven flows and an uber-hawkish Fed, has triggered big falls in the euro and yen, as well as emerging market currencies, led by the yuan. The moves are tightening global financial conditions, which can cause economic growth to slow. Companies in Japan, Germany and elsewhere face higher import costs for dollar-priced materials and components.Some past Fed tightening cycles weakened the U.S. currency once they kicked off. This time though, comparisons are being drawn with 1994 when 300 bps of rate rises lifted the dollar index 4.6% (following a 10.5% jump in 1993). Those moves were blamed for subsequent waves of emerging market crises. Graphic: The unstoppable dollar? – https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwgxydpo/USD2904.PNG 4/CHINA TO AUSTRALIAThe yuan, down 4% this month, may have further to fall if weekend data shows Chinese factory activity still weakening.Beijing, for now at least, seems to see the yuan as its main policy lever, much to the disappointment of stock markets which had hoped for more explicit government help or for a loosening of harsh COVID lockdown rules. China’s slowdown has also applied a discount at the quarry – pushing the Aussie dollar down some 4.5% through April.With recent data showing Australian first-quarter inflation at 20-year highs, anticipation is building that a hiking cycle could begin as soon as Tuesday. Swaps pricing and several economists reckon a 15 bps rate hike is likely. Graphic: Yuan, Aussie tumble as growth clouds gather – https://fingfx.thomsonreuters.com/gfx/mkt/mopanowxrva/Pasted%20image%201651136333241.png GAS & DEFAULT Moscow has upped the ante in its standoff with Western capitals over payments for gas shipments. It has cut gas to Poland and Bulgaria after they refused to accept its demand for payments in roubles rather than euros.The European Commission has warned that rouble payments could breach sanctions, but officials are still struggling to clarify the European Union stance on Moscow’s payments scheme.The elephant in the room is Germany – Russian gas comprises around a third of its total gas use, so the economy could slip into recession if supplies are cut.Meanwhile, the clock is ticking down on Russia to make a payment on its sovereign bonds which had been due April 4. Failure to pay within a 30-day grace period would tip it into default. Graphic: Russia’s roubles gas payment – https://graphics.reuters.com/UKRAINE-CRISIS/jnvwerljnvw/graphic.jpg More

The delegation will include subject-matter experts from USTR and the Departments of State, Labor, Commerce and Agriculture, he said.The visit follows recent meetings between top U.S. trade negotiator Katherine Tai and Kenyan Cabinet Secretary Betty Maina in which the two agreed to work on deepening U.S.-Kenya trade ties despite the Biden administration’s decision to freeze Trump-era negotiations on a free trade agreement.Deputy U.S. Trade Representative Sarah Bianchi told a trade conference in February that the U.S. government was engaging in robust talks with Kenya as part of its drive to expand equitable and inclusive U.S. investment in Africa.Tai met virtually in December with Maina, a move the Biden administration says will deepen the bilateral relationship.The administration of former President Donald Trump had launched talks with Nairobi on a bilateral free trade agreement, but the Biden administration put the negotiations on ice, focusing instead on dialogues with trading partners.Hodge said the U.S. delegation would seek to collaborate with their counterparts on way to “generate inclusive growth” that benefits workers, attracts investment and promotes regional economic integration. More

WASHINGTON (Reuters) -U.S. House of Representatives Speaker Nancy Pelosi said on Friday she hopes to pass a $33 billion aid package for Ukraine requested by President Joe Biden “as soon as possible.”Biden asked Congress on Thursday for the money to support the government in Kyiv – a dramatic escalation of U.S. funding for Ukraine more than two months after it was invaded by Russia.Lawmakers from both parties said they wanted to approve the emergency funding request quickly, but there was no immediate word on exactly when the House and Senate might vote amid disputes over what should be in any legislation.”We hope to as soon as possible pass that legislation,” Pelosi told her weekly news conference.Biden’s funding request includes over $20 billion for weapons, ammunition and other military assistance, as well as $8.5 billion in direct economic assistance to the Ukrainian government and $3 billion in humanitarian aid. Democrats, who narrowly control Congress, and Republicans disagree over whether to combine the Ukraine funding with billions of dollars for COVID-19 relief that Biden requested in March.Some Republicans have said they want the two issues to be separate, but some Democrats have seen support for Ukraine aid as a chance to pass COVID relief.Pelosi said lawmakers would have to “come to terms” with how to address both issues.”We have emergencies here. We need to have the COVID money and time is of the essence because we need the Ukraine money, we need the COVID money, so I would hope that we can do that,” Pelosi said.Some Republicans have also threatened to tie Biden’s funding requests to legislation that would prevent him rescinding Title 42, an immigration rule imposed under Republican President Donald Trump that allows U.S. officials to turn asylum seekers away from the U.S. border with Mexico due to the COVID pandemic. Pelosi’s comments came a day after the House overwhelmingly backed legislation to make it easier to export military equipment to Ukraine, reviving the Lend-Lease Act that helped defeat Adolf Hitler’s Germany during World War Two.It was the latest in a series of bills passed by the U.S. Congress to support Ukraine.In Kyiv, Ukrainian President Volodymyr Zelenskiy called the bill’s passage “concrete proof” that freedom can defend itself against tyranny.”I am sure now that the Lend-Lease will help Ukraine and the whole free world to beat the ideological successors of the Nazis, who started a war against us,” he said in a late night address on Friday.Russia calls its actions in Ukraine a “special operation” to disarm Ukraine and protect it from fascists. Ukraine and the West say this a false pretext for an unprovoked Russian war of aggression. More

NEW YORK (Reuters) -A volatile stock market faces a critical test next week, when the U.S. Federal Reserve is expected to raise interest rates and give more insight on its plans for tightening monetary policy to fight surging inflation.Worries over an increasingly hawkish Fed have helped drag the benchmark S&P 500 index down 13.3% so far in 2022, , its steepest four-month decline to start any year since 1939.While investors have ramped up expectations of how aggressively the central bank may tighten monetary policy, many are concerned the Fed will not be able to keep the economy afloat as it battles the worst inflation in nearly four decades. Compounding concerns over monetary policy, investors have been riled by everything from rising bond yields to the war in Ukraine and more recently lockdowns in China. The market is also entering a historically weaker six-month period for stocks.“We’re going to be in for, I think, more dicey, choppy, volatile markets here for a while longer, just because of the uncertainty,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab (NYSE:SCHW) in Austin, Texas, who said that “things turned the other direction right at the beginning of the year,” coming off a strong fourth quarter at the end of 2021.Investors widely expect the Fed to raise rates by 50 basis points when the central bank’s meeting concludes on Wednesday. They are also bracing for signals from Fed Chair Jerome Powell about the future path of interest rates, the central bank’s plans for reducing its balance sheet and its view on when inflation will recede. Policymakers raised rates in March by 25 basis points, the first increase since 2018.“If the Fed continues to expect high levels of inflation and they don’t see it moderating in the future, that will be a concern for investors,” said Michael Arone, chief investment strategist at State Street (NYSE:STT) Global Advisors. “It will mean that the Fed will continue to raise rates and tighten monetary policy, which the market is expecting, but maybe even more aggressively.”Beyond next week’s action, policymakers have coalesced around an overall increase of the federal funds rate to at least 2.5% by year end.Crucial to the tightening plans will be how persistent officials view the current pace of inflation after March’s consumer price index showed an annual increase of 8.5%, the largest rise in over 40 years. Given that there are indications inflation has started to peak, said Kei Sasaki, senior portfolio manager at Northern Trust (NASDAQ:NTRS) Wealth Management, “if there is an even more resounding hawkish tone coming out of that meeting, then that could certainly be viewed as negative.”The selloff accelerated on Friday as the S&P 500 tumbled 3.6% — its biggest one-day drop since June 2020 — following a disappointing earnings report from Amazon (NASDAQ:AMZN) that sent the e-commerce giant’s shares down 14%.The month of April marked the S&P 500’s biggest monthly fall since the onset of the coronavirus pandemic in early 2020, while the tech-heavy Nasdaq logged its largest monthly drop since the 2008 financial crisis. As investors have girded for tighter monetary policy, bond yields have jumped this year, with the yield on the 10-year Treasury note up to about 2.9% from 1.5% at the end of 2021. That has particularly pressured tech and growth stocks, whose valuations rely on future estimated cash flows that are undermined when the investors can earn more on risk-free bonds. The Russell 1000 growth index has fallen some 20% so far this year.Meanwhile, investor sentiment is dour. The percentage of individual investors describing their six-month outlook for stocks as “bearish” rose to 59.4%, its highest level since 2009, according to the latest weekly survey from the American Association of Individual Investors. To be sure, after the market’s recent slide, the Fed’s actions could provide some comfort. Following the Fed’s expected rate hike in March, the S&P 500 rallied more than 8% over the ensuing two weeks. Investors will keep an eye on corporate results, after a mixed week of earnings from megacap companies. Reports from Pfizer (NYSE:PFE), Starbucks (NASDAQ:SBUX) and ConocoPhillips (NYSE:COP) are due next week, among others.With the calendar flipping to May, seasonality also looms as a possible factor for investors. The S&P 500’s strongest six months of the year since 1946 have been November through April, when the index has risen an average of 6.8%, according to a CFRA note earlier in the week.By comparison, the index has gained only 1.7% on average from May-October. However, more recently, the trends have not been as strong. In the past five years, the S&P 500 has averaged a 7.2% gain in the May-October period versus 5% for November-April, according to a Reuters analysis. “I don’t know how important seasonality is going to be this time around,” said Jack Ablin, chief investment officer at Cresset Capital Management. More

Aerospace and defense firm Raytheon Technologies (NYSE:RTX) Corp lowered its full-year revenue forecast on Tuesday, blaming the loss of sales to Russia due to Western sanctions imposed over the war in Ukraine.Shares in the U.S. company fell 1.7% in pre-market trading to $98.00.As a large number of U.S. companies have severed ties with Russia following Moscow’s invasion of Ukraine and the introduction of Western sanctions, the aviation industry is among the sectors severely impacted.Raytheon (NYSE:RTN)’s Chief Financial Officer Neil Mitchill told Reuters that lowering the 2022 revenue guidance by $750 million “was strictly related to direct and indirect sales that are no longer allowed because of the global sanctions imposed on Russia.”Raytheon expects full-year revenue to be between $67.75 billion and $68.75 billion, lower than its previous forecast of $68.5 billion to $69.5 billion.About three quarters of that lost $750 million revenue was direct sales of commercial equipment to Russia, Mitchill said, and the remainder was engine parts that would have been sold principally by Pratt & Whitney Canada.Chief Executive Greg Hayes told analysts on a post earnings conference call that Raytheon had sold its share of a Russia-based heat exchanger joint venture for Boeing (NYSE:BA) Co and Embraer SA (NYSE:ERJ) as Russia’s invasion of Ukraine unfolded. However, the company said revenue rose 3% to $15.72 billion in the quarter, driven by a recovery in air travel demand, which boosted sales of its aerospace products and services.Raytheon posted a net income of $1.08 billion, or 72 cents per share, in the quarter ended March 31, compared with $753 million, or 50 cents per share, last year.Commercial aerospace sales rose on a rebound in demand after being depressed during a period of slower commercial air travel during the pandemic. Compared to the same quarter a year ago, Collins Aerospace which makes jet parts saw sales rise 10%, and Pratt & Whitney which makes jet engines saw sales jump 12% despite slower military engine sales.Sales at Raytheon’s defense-related businesses, Missiles & Defense, dropped 7% compared to the same quarter a year ago, and Raytheon Intelligence & Space saw sales fall 5% after the Global Training and Services business was sold to Vertex (NASDAQ:VRTX) Aerospace.Hayes said the company would not see a financial benefit from Ukraine-linked weapons orders in 2022. For example, Stinger and Javelin missile production would could ramp up in 2022, but larger replenishments would be in 2023 or 2024, he said.Raytheon’s adjusted earnings per share in the quarter were $1.15, versus Wall Street analysts’ $1.02 forecast, according to Refinitiv data. Revenue was $15.72 billion with analysts forecasting $15.8 billion according to Refinitiv data.(This story corrects “with” to “for” in 7th paragraph to clarify Raytheon had Embraer and Boeing as customers not JV partners) More