Economy

BRASILIA/SAO PAULO (Reuters) – The Brazilian currency’s monster rally may soon run out of gas, analysts and government officials say, as U.S. interest rate hikes and risks to the Chinese economy threaten the fundamentals of the world’s best-performing major currency.Brazil’s real has gained over 18% against the U.S. dollar so far this year, more than twice the rise of any other peer, as aggressive rate hikes drew in foreign investment flows seeking distance from the Ukraine war.While Brazil’s double-digit interest rates may still offer a lucrative carry trade for hot money, looming rate hikes from the U.S. Federal Reserve may narrow that gap quickly. China’s aggressive lockdowns to fight COVID-19 have also weighed on prices for the iron ore, soybeans and oil that Brazil exports.”There are two big risks to the real’s performance: the Fed raising rates more than expected and a sharp deceleration in the Chinese economy that could affect commodity prices,” said Alvaro Mollica, emerging markets strategist for Citigroup (NYSE:C).A note from his colleagues at Citi Economics on Thursday flagged “a weaker currency ahead” for Brazil, forecasting a year-end exchange rate of 5.19 reais per dollar – a nearly 10% depreciation from Wednesday’s close.Even in Brazil’s Economy Ministry, which has trumpeted the jump in foreign investment and perks of a stronger currency for fighting inflation, some officials doubt the trend will continue indefinitely. Right-wing President Jair Bolsonaro’s government, which generated huge initial optimism among investors, has had a mixed record on reforms as well as privatizing state assets.”I haven’t seen any structural factor, unfortunately. It all seems circumstantial,” said one official, requesting anonymity to give a frank assessment of the market. “The dollar came way down, even below where some institutions see its equilibrium … I think there’s room for some reversal.”The same official pointed out that Brazil’s main stock exchange, which has attracted a net 69 billion reais ($14.7 billion) in foreign flows this year, no longer looks so cheap in dollars or reais after an 11% runup this year.Another ministry source agreed that, apart from Brazil’s interest rates, the major drivers of the currency rally have been “external” and are subject to change.Not all officials are so skeptical.Fausto Vieira, undersecretary of macroeconomic policy at the Economy Ministry, said business-friendly regulation is boosting investment in areas such as sanitation, where private capital spending has jumped from 3 billion to 30 billion reais annually.The ministry projects some 360 billion reais in new private investments through 2025, helping to draw long-term foreign capital flows regardless of short-term market effects.However, that may hinge on this year’s election. Leftist former President Luiz Inacio Lula da Silva, who leads Bolsonaro in polling ahead of the October vote, has vowed to roll back much of the incumbent’s economic agenda.As the presidential race heats up, analysts warn that both Lula and Bolsonaro may resort to more populist rhetoric, raising investor concern about the country’s fiscal discipline.For now, Brazil’s risk premiums have come down, noted economist Jonathan Petersen of Capital Economics, which “may reflect fading concerns about fiscal sustainability and political risks.””But if our outlook for falling commodity prices and weakening economic growth proves correct, these concerns may re-emerge, especially prior to the election,” he told clients in a Thursday note, forecasting the exchange rate at 5.0 reais per dollar by the end of the year. More

Ashmore warned that Russia’s war in Ukraine could worsen growing inflationary pressures as the specialist emerging markets manager saw clients pull $3.7bn from its funds in the first quarter.The London-based fund reported a hefty 10 per cent reduction in assets under management to $78.3bn at the end of March — a fall that it blamed on Moscow’s invasion of Ukraine.“The principal economic impact of the war has been to push inflation higher and this is being felt across the world,” said Mark Coombs, Ashmore’s chief executive, on Thursday.The Ukraine war would have “far-reaching consequences for the existing world order,” said Coombs, echoing a warning from the IMF which described Russia’s aggression as “massive setback” for global economy’s recovery from the coronavirus pandemic. Ashmore had placed sizeable bets on Russian assets in the weeks leading up to the invasion of Ukraine and holds about $500mn in debt exposure to struggling Chinese property developer Evergrande, according to Bloomberg.The fund’s shares fell by as much as 9 per cent to hit a six-year low on Thursday before recovering to close slightly up.Institutions such as the IMF have warned that emerging and developing economies face the prospect of higher borrowing costs and capital outflows as a result of Russia’s actions. Food and energy prices globally have spiked higher owing to fears about supply disruptions in Russia and Ukraine, two of the world’s most important producers of key commodities including crude oil, natural gas and wheat.“Rising energy and food prices as a result of the Ukraine war are a big problem for many emerging market economies which were struggling to recover from the coronavirus pandemic even before the conflict started,” said Maarten-Jan Bakkum, senior emerging market strategist at NN Investment Partners in the Netherlands.Stock markets across the developing world have also weakened as the war in Ukraine has escalated with the MSCI emerging markets equity index down almost 10 per cent since the start of the year.Investors have also withdrawn $2.5bn so far this year from Vanguard’s flagship emerging markets exchange traded fund, the largest EM tracker.Net outflows from emerging market ETFs sold in the US and Europe reached $14.8bn in the first quarter, according to Morningstar, the data provider.Active fund managers that aim to pick winning stocks in emerging markets have also struggled. Two-thirds of the 246 global emerging markets fund managers which together manage assets of $500bn failed to beat the MSCI emerging markets benchmark in the first quarter, according to Copley Fund Research, a data provider,“Some global emerging market funds have lost a fifth of their value this year with Russia acting as a key driver of those losses,” said Steve Holden, chief executive of Copley Fund Research. Bakkum of NN Investment Partners said he feared that the war in Ukraine would intensify further and create even bigger problems across emerging markets. “There are already signs of social unrest in some developing countries. This is making the policy response more complicated as central banks in emerging markets are under pressure to hike interest rates in response to rising inflation” said Bakkum. More

Retail sales increased 0.5% in March, boosted by a big jump in gasoline prices.
Import prices climbed 2.6%, the biggest one-month jump since 2011.
Jobless claims rose by 185,000 and were up more than expected.

Customers pushing shopping carts shop at a supermarket on April 12, 2022 in San Mateo County, California.
Liu Guanguan | China News Service | Getty Images

Consumers continued to spend in March even as inflation rose to its highest level since late 1981, according to government data released Thursday.
Retail sales climbed 0.5% from the previous month, slightly less than the 0.6% Dow Jones estimate and a deceleration from the upwardly revised 0.8% gain in February.

The move came with inflation rising 1.2% for the month as measured by the consumer price index.
Retail sales data is not adjusted for inflation. Consequently, the biggest gain in sales for the month game at gas stations, which saw an 8.9% increase in sales as gasoline prices rose 18.3% during the period. The sector has seen a 37% sales burst over the past year.
By contrast, online sales slumped sharply, falling 6.4% for the month. General merchandise stores saw a gain of 5.4%, sporting goods and electronics stores both had 3.3% gains, and sales at food and beverage stores along with bars and restaurants rose 1%.
Retail sales broadly rose 6.9% from a year ago, a period during which CPI inflation surged 8.5%, the highest level since December 1981.
In other economic data, initial jobless claims rose to 185,000 for the week ended April 9, an increase of 18,000 from the previous week and above the estimate of 172,000. Continued claims, which run a week behind the headline number, fell by 48,000 to 1.475 million.

Also, inflation continued to hit imports, with prices rising by 2.6%, the largest monthly increase since April 2011, the Bureau of Labor Statistics reported. That was higher even than the 2.2% estimate.
On a 12-month basis, import prices jumped 12.5%, the largest such gain since September 2011.
Correction: The consumer price index rose 1.2% in March. An earlier version misstated the percentage.

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Russia’s invasion of Ukraine has caused a “massive setback” for the economic recovery from the coronavirus pandemic, said the head of the IMF, with lower growth and higher inflation expected in most countries. Speaking at the Carnegie Endowment in Washington on Thursday ahead of next week’s IMF and World Bank spring meetings, Kristalina Georgieva said the economic fallout of the war in Ukraine is spreading across the world. Her analysis of the global economy was pessimistic, saying Russia’s invasion made “much worse” the squeeze on incomes for hundreds of millions of people around the world already suffering from higher food and energy prices.“This is a massive setback for the global recovery,” Georgieva said. “For the first time in many years, inflation has become a clear and present danger for many countries.”The fund’s managing director said that in its economic forecasts next week, the IMF would downgrade growth expectations for 143 countries around the world, representing 86 per cent of global gross domestic product. Although some commodity exporters were enjoying brighter prospects as prices for their exports increased, these would be easily offset by the downgrades in most countries. For those hardest hit, there would be “catastrophic economic losses in Ukraine [and] a severe contraction in Russia”, she added. As Russia and Ukraine are leading exporters of wheat and fertiliser, food insecurity would become a “grave concern” in areas such as sub-Saharan Africa and some Latin American countries.

With inflation hitting a fresh 40-year high in the US and a 30-year high in the UK this week, the IMF said its forecasts next Tuesday would also show rapid price increases would be more persistent than it previously thought. The task for central banks and economic policymakers, Georgieva said, was to “rein in high inflation and rising debt, while maintaining critical spending and building foundations for durable growth”.Georgieva was under no illusions how difficult this task would be and avoided making specific monetary policy suggestions while urging an end to the war in Ukraine. “In the face of this challenge, central banks should act decisively, keeping their finger on the pulse of the economy and adjusting policy appropriately. And, of course, communicating clearly,” she said. The head of the leading international financial institution also urged countries to recognise the threat of a fragmentation into economic blocs which would amplify the negative outlook she presented. “In a world where war in Europe creates hunger in Africa; where a pandemic can circle the globe in days and reverberate for years; where emissions anywhere mean rising sea levels everywhere — the threat to our collective prosperity from a breakdown in global co-operation cannot be overstated,” Georgieva said. More

The European Central Bank on Thursday stuck to its gradual timetable for winding down bond purchases in the third quarter without putting a firm date on when it will raise interest rates despite intensifying inflationary pressures in the eurozone.Policymakers on the central bank’s governing council, who met this week in Frankfurt, face a dilemma of how drastically to tighten monetary policy in response to record inflation while the risk grows of a sharp economic downturn caused by the fallout from Russia’s invasion of Ukraine.The ECB kept its main policy rate unchanged at minus 0.5 per cent and repeated its statement that the “calibration of net purchases for the third quarter will be data-dependent and reflect the governing council’s evolving assessment of the outlook”.“How the economy develops will crucially depend on how the [Ukraine] conflict evolves, on the impact of current sanctions and on possible further measures,” the ECB said.“The upside risks to the inflation outlook have intensified,” said Christine Lagarde, ECB president, adding that it could stay higher if price expectations continued to rise and supply chain bottlenecks worsened. “However, if demand were to weaken in the coming months it would weaken inflationary pressures.”“We’ll deal with interest rates when we get there,” Lagarde said, emphasising that rising price pressures had “reinforced” the council’s expectation that it would end net asset purchases between July and September.The euro fell slightly while eurozone bonds rallied following the ECB announcement. The single currency was unchanged against the dollar at $1.088, giving up its 0.2 per cent gain ahead of the decision. Germany’s 10-year yield fell 0.03 percentage points from earlier highs to 0.77 per cent.Markets are pricing in an increase in the ECB’s deposit rate back above zero by the end of the year and to almost 1.5 per cent by the end of next year. But the central bank said any rate rise would be “gradual” and would only take place “some time” after it stops net bond purchases.Katharine Neiss, chief European economist at PGIM Fixed Income, said the announcement “suggests the door is now wide open to rate rises later this year” but given the risk to growth from the Ukraine war “the debate among the governing council will likely shift away from when to start raising rates, to when to stop”.In contrast, many other central banks have already stopped buying bonds and started raising rates. This week, the Reserve Bank of New Zealand and the Bank of Canada both raised rates by half a percentage point, while monetary authorities in South Korea and Singapore also tightened policy.The US Federal Reserve is expected to raise rates by as much as a half a percentage point at its policy meeting in May, while the Bank of England has increased its main rate three times since December and is expected to do so again at its meeting next month.The ECB accelerated its timetable for ending net bond purchases at its meeting last month. Since then eurozone inflation has risen to a new record high of 7.5 per cent in March, intensifying calls for the central bank to move even faster in withdrawing its stimulus.However, the ECB continues to forecast that inflation will dip back below its 2 per cent target in two years’ time, as energy prices retreat and supply chain bottlenecks ease.The central bank on Thursday also alluded to its plan to introduce a potential “new instrument” to make targeted bond purchases in response to any unwarranted sell-off in the bonds of a particular country or group of countries.“The pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of monetary policy and made the governing council’s efforts to achieve its goal more effective,” it said, adding that “under stressed conditions” it would aim to maintain such flexibility.There has been a sell-off in eurozone sovereign bond markets since the start of this year, as investors anticipate that soaring inflation will force the ECB to stop buying bonds and start raising rates soon.The spread between German and Italian 10-year borrowing costs has increased only slightly, however, rising from about 1.3 percentage points to 1.6 percentage points since the start of the year. Still some policymakers fear the fallout from the Ukraine war could reduce growth and increase debt levels in southern European member states, pushing up their borrowing costs faster than for other countries. More

Fast Retailing, Asia’s largest clothing retailer and owner of the Uniqlo fashion brand, has said it expects a significant drop in profits in China this year as it warned on the impact of the country’s Covid-19 restrictions. “We are very much in trouble with China’s zero Covid policy, in terms of profit and the livelihoods of our employees,” Tadashi Yanai, chief executive of the Japanese group that is seen as a bellwether for multinationals’ performance in China, told reporters on Thursday. “Shanghai has been forced to suspend operations and shipping from the port has become difficult,” he added.Yanai’s blunt remarks come as a series of lockdowns in cities across Chinese adds pressure on transport and logistics in the country, exacerbating the economic fallout from the government’s coronavirus containment policies. Fast Retailing’s Greater China business, which includes Hong Kong and Taiwan, accounts for 55 per cent of its international operating profit, which on Thursday the company said had hit Y100.3bn ($801mn) for this six months to February.Mainland China is the company’s largest market with 863 stores, compared with 802 in its home market. In March, 133 of its Chinese shops, including those in Shanghai where strict lockdown measures are in place, were forced to close. International clothing brands including H&M and Nike, already suffering from the impact of a consumer boycott after distancing themselves from Xinjiang cotton, have also warned that the lockdowns will drag on their businesses in China. Despite the setbacks, Fast Retailing raised its full-year net profit forecast for the year to the end of August, to Y190bn ($1.5bn). That is up 9 per cent from the previous forecast of Y175bn in January, as Europe, North America and the rest of Asia are expected to boost profit.Yanai also warned on the impact of the weakening yen, which this week plunged to its lowest level against the US dollar in nearly two decades, against the backdrop of rising shipping and raw material costs. “The weak yen has no merit whatsoever. From the perspective of Japan as a whole, there are only disadvantages,” said Yanai. “Japan is engaged in the business of importing raw materials from all over the world, processing them, adding value to them, and selling them. In this context, there is no advantage if the value of a country’s currency weakens.” More

CHICAGO/PARIS (Reuters) – Severe outbreaks of bird flu in the United States and France are tightening global egg supplies and raising prices for the food staple as the war in Ukraine disrupts shipments to Europe and the Middle East.Higher prices are particularly painful for consumers who rely on eggs as a low-cost source of protein and substitute for more expensive meat. Demand jumps around the Easter and Passover holidays in the United States and Europe as families use eggs to bake and dye Easter eggs.Bird flu has wiped out more than 19 million egg-laying chickens on commercial U.S. farms this year in the worst outbreak since 2015, eliminating about 6% of the country’s flock, according to Reuters calculations of federal and state government data. France, meanwhile, is suffering its worst outbreak ever in which about 8% of egg-laying hens have been culled.When poultry are infected, entire flocks are culled to contain the disease, which is often spread by wild birds. The deadly virus and war are the latest challenges for egg suppliers also grappling with labor shortages and high costs for energy and grain used for animal feed.Higher egg prices eat into profits for bakeries and food companies grappling with increased costs for flour and other goods. World food prices jumped nearly 13% in March to a new record high as the war in Ukraine, a major exporter of wheat and corn, pushed up grain prices, the U.N. food agency said.Egg prices are expected to stay elevated, producers said, as it will take months to resume operations on infected farms. Infections also hamper work at facilities that process shell eggs into products like dried eggs and liquid eggs used in food items such as cake and pancake mixes and egg sandwiches.    “The product industry is in a general panic,” said Marcus Rust, chief executive of Rose Acre Farms, the second-largest U.S. egg producer. The company lost about 1.5 million egg-laying chickens at an Iowa farm infected by bird flu, which also sidelined a processing plant, he said.’EVERYBODY IS RUNNING SHORT’Iowa, the top U.S. egg-producing state, has suffered badly with the culling of two flocks that each contained more than 5 million laying chickens. On Wednesday, Nebraska said a flock of more than 1.7 million laying hens would be culled. The sheer size of such poultry operations accelerated the impact on the U.S. food industry, compared to Europe where farms are smaller.Wholesale prices for large eggs in the U.S. Midwest topped $3 per dozen in March and reached the second-highest level ever, up nearly 200% from a year earlier on the spot market, data firm Urner Barry said. Prices remained below the record of $3.09 per dozen set at the beginning of the COVID-19 pandemic. Egg products like liquid whole eggs are at record highs, though, Urner Barry said. In France, wholesale shell egg prices have climbed 69% from last year, French farm office FranceAgriMer said. As a result, consumers could see higher prices for food products made with eggs.”When you produce mayonnaise, it is quite complicated when egg prices surge,” said Jean-Philippe Puig, chief executive of French agri-food group Avril, which owns sauce maker Lesieur. “You must turn to supermarkets and convince them to accept a price rise.”The United States increased egg imports from countries including France, Italy and Spain to boost supplies after its worst-ever outbreak of bird flu in 2015, according to U.S. government data. Imports are a less viable option now because of outbreaks in Europe, analysts said.”It is very much turning into a global issue in terms of the overall shortage,” said Karyn Rispoli, Urner Barry egg market reporter. “Unfortunately now everybody is running short on supply.”WAR REDIRECTS DEMANDThe outbreak of war, not just disease, is disrupting supply chains for Middle East buyers.Santosh Kumar, who imports eggs for Farzana Trading in the United Arab Emirates, said he is not aware of shipments from Ukraine into the UAE for the past two weeks. Farzana is importing eggs from Turkey instead, he said. Ukraine produced 14.1 billion eggs in 2021, data from Ukraine’s state statistics service shows. A year earlier, production reached 16.2 billion eggs, more than the 15.7 billion produced in France, the EU’s largest egg producer, according to French egg industry group CNPO.Ukraine has in recent years been the EU’s main egg supplier, accounting for about half of the imports, ahead of the United States.Middle Eastern countries that bought Ukrainian eggs before the war are attempting to find replacement supplies in Europe, said Loic Coulombel, CNPO vice president.”There is a bird flu problem in France but also throughout Europe,” he said. “The is no other European country that would have a large volume to compensate for the shortfall.”French food manufacturers will likely reduce output of some processed goods or adjust their recipes to cope with high egg prices, said Coulombel, who produces about 1 million eggs in France’s Brittany and Normandy regions. In Green Bay, Wisconsin, Liz Rehberg, owner of cake and pastry shop The Bakery, said the price for 15 dozen eggs climbed to $45 from $26 in recent weeks. She is considering whether to raise prices or reduce the sizes of her baked goods.    “You’re just ordering it because you need eggs,” Rehberg said. “Then you look at the price and you go, ‘Oh my God.'” More

Salameh is facing investigations in Lebanon and five European countries into the alleged embezzlement of some $330 million in public funds with the help of his brother, Raja, charges they have both denied.”I have already informed the Swiss justice (authorities) that I am ready to go,” he told Swiss broadcaster SRF’s investigative Rundschau programme in an interview from Beirut aired late on Wednesday.”Because they asked the question in February 2020 whether they can (interview) me in Lebanon or in Switzerland. I said I am ready to go to Switzerland…I am waiting for them to call for me.”The Swiss attorney general’s office said last year it had requested legal assistance from Lebanon in the context of a probe into aggravated money laundering and possible embezzlement tied to the Lebanese central bank.Lebanon’s public prosecutor last year questioned Salameh based on that request.Salameh estimated his personal fortune at around $150 million, which have grown from $23 million in 1993 – before he became head of the central bank – thanks to investments.Asked about properties he owned in Switzerland via proxy companies, including a building in the Lake Geneva town of Morges, Salameh said he had never seen it.He had used professional investment advisers and bank loans to buy property, he said, adding: “I don’t see where is the crime in that.” Europe’s criminal justice coordination body said in March that 120 million euros ($131 million) of Lebanese assets had been frozen in France, Germany, Luxembourg, Monaco and Belgium linked to an embezzlement investigation. German prosecutors said the move was tied to probes into Salameh.($1 = 0.9164 euros) More