Economy

BENGALURU (Reuters) – The Bank of Korea is likely to stand pat at its meeting this week as its committee awaits the appointment of a new governor, but it will embrace a steeper rate hike path ahead to tame more than decade-high inflation, a Reuters poll showed.While the U.S. Federal Reserve has now begun a tightening cycle and the European Central Bank is not expected to raise rates until later this year, South Korea’s central bank has been quick to address high inflation and ballooning household debt.The BoK has raised its base rate by 75 basis points since August, taking it to 1.25%, making it the first major Asian central bank to normalize policy from pandemic-induced lows.Russia’s invasion of Ukraine has exacerbated inflationary pressures. March inflation showed prices rose 4.1% from a year earlier, staying above the BoK’s target of 2% for the 12th straight month and increasing the chances of another rate hike.But the latest survey of 29 economists, taken April 4-11, suggested the BoK will hold its policy rate at 1.25% on April 14 on growth concerns and its own lack of a governor.”Above all, the meeting is set to take place without a governor, as the parliamentary hearing for nominee Chang-Yong Rhee is to be held on April 19,” said Oh Suktae, an economist at Societe Generale (OTC:SCGLY).”But concerns on growth have also increased due to the war in Ukraine, the Fed’s hawkish stance, and the ongoing Omicron wave. A significant slowdown in household debt growth may also result in a wait-and-see stance.”South Korea’s central bank senior deputy governor Lee Seung-heon said last week the April policy review meeting will be tricky, citing the twin challenges of dealing with higher inflationary risks and downward pressure on growth.Yet almost 38%, or 11 of 29 economists, expected a 25 basis point hike at the upcoming meeting.”Despite increasing growth uncertainties, we think the economic risks from rising inflation and financial imbalances will sway the BOK to continue with its rate hike cycle,” said Lloyd Chan, senior economist at Oxford Economics, who expects a hike.The poll medians also showed the BoK following a steeper rate hiking path to control unruly inflation. Interest rates are now expected at 2.0% by year-end, a level which a February poll only forecast them to reach by the end of 2023.Inflation forecasts were significantly upgraded in the current poll to 3.8%, 3.5% and 2.9% for the second, third and fourth quarters of the year, from 2.5%, 2.1% and 1.5% estimated in a January survey.Inflation was predicted to average 3.3% and 2.0% for 2022 and 2023, a sharp rise from 2.0% and 1.6% in the last poll.”Inflation is likely to stay elevated at least in the near term, after the rally in global energy prices,” noted Sanjay Mathur, chief economist, Southeast Asia & India at ANZ.”While producers have started to pass through the higher costs of inputs to consumers, the still large gap between PPI and CPI point to persistent price pressures in the pipeline.”The South Korean economy was forecast to expand 2.8% in 2022, down from 2.9% estimated in the January poll. However, the growth forecast for next year increased to 2.6% from 2.5%. More

In the spring of 2020, as the Covid-19 pandemic took hold, many pharmaceutical companies faced disruptions to their supply chains. Chemicals used to produce the key ingredients in drugs were often sourced from only a few suppliers in China — sometimes from just one.The pandemic has brought to light just how much the global pharmaceutical supply chain depends on China, even for the most basic ingredients.This is the final instalment of a Nikkei Asia series on Beijing’s aim to become the centre of the global drug industry. This instalment focuses on China’s market command for active pharmaceutical ingredients — a dominance some western countries are challenging as Covid-19 and geopolitical tensions expose supply-chain vulnerabilities. Read more here.A version of this article was first published by Nikkei Asia on April 5 2022. ©2022 Nikkei Inc. All rights reservedRelated storiesChina’s global vaccine gambit: Production, politics and propagandaPharmacy of the world: China’s quest to be the No. 1 drugmakerChinese healthcare companies hit COVID jackpot with home-test kitsChina’s new COVID lockdowns hit Apple suppliers More

CIUDAD JUAREZ, Mexico (Reuters) – Mexican truck drivers blockaded two busy bridges at the border with United States on Monday amid rising tensions on both sides over an order by Texas Governor Greg Abbott that has slowed commercial crossings between Mexico and Texas.”We’re desperate because we have to wait up to 15 hours to cross into the United States,” said truck driver Pedro Gonzalez as he and others protested at the Zaragoza bridge connecting Ciudad Juarez to El Paso.Abbott ordered the state’s Department of Public Safety (DPS) last week to conduct “enhanced safety inspections” of vehicles as they cross from Mexico into Texas in order to uncover smuggling of people and contraband.The inspections were part of a broader effort to deter illegal immigration, Abbott said.However the order has infuriated industry groups and threatened to alienate even some of Abbott’s allies.”We are supporters of Governor Abbott, but unfortunately we weren’t taken into consideration,” said Ernesto Gaytan, chairman of Texas Trucking Association, who said he’d been fielding calls from frustrated drivers since the order took effect.Gaytan said migrants rarely tried to cross the border illegally via commercial trucks at legal ports of entry.”Slowing down trade isn’t the solution.” A Texas DPS spokesperson said that since Abbott’s order was issued, the agency had inspected nearly 2,400 commercial vehicles and taken 552 vehicles out of service for “serious safety violations” such as defective brakes, tires and lighting.The spokesperson declined to say whether the effort had uncovered any smuggling attempts. A second bridge, connecting the Mexican city of Reynosa to Pharr, Texas, was also blockaded by truck drivers.Dante Galeazzi, president of the Texas International Produce Association, said the delays at the Pharr bridge alone had, since Friday, prevented an estimated $30 million of fresh produce from reaching the U.S. side.”There are very likely to be store shelves devoid of fresh produce items this Easter holiday weekend,” he said, warning that prices would rise for consumers if the delays continued. More

ORLANDO, Fla. (Reuters) -For the U.S. bond market, the first quarter was marked by historically high volatility and the poorest performance in decades. Hedge funds scored badly, and will be hoping for a better showing in the second quarter.U.S. futures market positioning in the first week of the new quarter showed that funds generally got it right on the move up in short-dated rates and yields, but didn’t anticipate the spike higher in the 10-year yield.It was a mixed bag on the relative value trade between two- and 10-year Treasuries, the closely watched “2s/10s” yield curve. The curve flattening that funds positioned for came to pass, but only briefly.Commodity Futures Trading Commission data showed that funds cut their net short 10-year Treasuries position in the week to April 5 by 113,682 contracts to 362,875, and increased their net short position in two-year bonds to 72,194 contracts from 59,202.That was essentially a bet on the 10-year yield falling, and the two-year yield rising. The 10-year yield rose to 2.55% from 2.40% in that week and has continued to soar, reaching a three-year high on Monday of 2.77%. The two-year cash yield jumped by around 30 basis points to 2.60% in the week to April 5. A short position is essentially a bet that an asset’s price will fall, and a long position is a bet it will rise. In bonds, yields rise when prices fall, and move lower when prices rise.Taken together, these CFTC position shifts were a collective bet on a flatter “2s/10s” curve. The curve inverted by as much as 8 basis points on April 4 before rapidly steepening to +20 bps a few days later. Q1 CURVE TRADES CRUSHED Hedge funds often take long-term directional bets and thrive on the arbitrage opportunities created by rising volatility. While funds seemed to get it at least partially right as the second quarter started, with regard to their Treasuries bets, the first quarter was extremely challenging.Industry data provider HFR said on Friday its Relative Value Fixed Income-Sovereign Index lost 2.66% in the first quarter, the worst performance for two years and a stark contrast to the 7.71% surge in its broader Macro Index.Comparing the shifts in CFTC Treasuries futures positioning in the January-March period with moves in U.S. yields shows that funds got the directional bets on higher yields right, but were crushed on their curve trades.Funds increased their 10-year bond net short position by almost 265,000 contracts and their two-year net short position by 147,000 contracts, effectively a bet that the 10-year yield would rise by more than the two-year yield.The 10-year yield rose around 83 bps in the quarter, but the two-year yield surged 160 bps, the biggest quarterly rise in over 40 years. The curve flattened by 77 bps, the most since 2011.The overwhelming consensus now is that the Fed is about to undertake the most aggressive policy tightening in decades via steep interest rate hikes and a rapid reduction of its balance sheet.So where does the curve go from here? Analysts at Citi note a fairly substantial amount of easing is already priced into U.S. money markets from the expected peak in rates in the second half of next year, suggesting there may be limited room for the curve to flatten further. But analysts at Morgan Stanley (NYSE:MS) argue that an inverted yield curve “is here to stay,” without necessarily flagging recession ahead. If a clear trend emerges over the course of the quarter, funds will be hoping they are on the right side of it this time.Related columns: – Cold comfort in re-steepening U.S. yield curve (Reuters, April 8)- Wage-price spiral alarm risks prolonging real income funk (Reuters, April 8)- Elusive bond risk premium misses its curtain call (Reuters, March 30)- ‘Japanification’ still lurks behind hawkish Fed frenzy (Reuters, March 29)- Cruel to be kind – Fed seems tempted by 1994 playbook (Reuters, March 23)- To neutral … and beyond! U.S. rate outlook rises after Fed liftoff (Reuters, March 16)(The opinions expressed here are those of the author, a columnist for Reuters.)(By Jamie McGeever; Editing by Andrea Ricci) More

The UK population is now more worried about their finances than catching Covid, according to a large university study that points to surging inflation becoming the public’s top concern.In March, 38 per cent of UK adults said they were worried about their finances, the highest proportion since the launch of the Covid social study run by University College London in March 2020.By contrast, the proportion concerned about catching or becoming ill from coronavirus fell to 33 per cent, down from 40 per cent in January.All age groups reported increased concerns about their finances, but the figure reached nearly half of those aged 30 to 59, twice the share among older people. Of this middle-aged group, only about one-third were worried about Covid.Prof Daisy Fancourt, the lead author, said the results “have seen a cost of living crisis emerge”.Fancourt said the findings highlighted how the government’s new relaxed coronavirus guidelines had affected the way that people viewed the illness. “This is despite the fact that the number of Covid cases, hospitalisations and deaths remains equivalent or higher than in January 2022, meaning that the overall situation remains unchanged despite the shift in attitude,” she said. In England, legal restrictions surrounding Covid ended on February 24, with similar relaxations in other nations shortly afterwards.Household finances became the primary concern for Britons ahead of the energy bills cap set by the sector regulator rising by 54 per cent in April. Even before that, consumer inflation rose to a 30-year high in February of 6.2 per cent and the consensus is of a further rise in the March figures that are released on Wednesday. Inflation could accelerate further in the second part of the year reflecting increased gas and oil prices following Russia’s invasion of Ukraine. As a result, only about half of the population felt in control of their finances in March, down from nearly two-thirds last October, the UCL study found.

The study, funded by the Nuffield Foundation, UKRI and Wellcome, is based on a survey of 29,000 people interviewed between March 21 and 27. Much smaller studies published fortnightly by the Office for National Statistics showed an increase in the proportion of the population cutting their non-essential spending and energy use to cope with rising living costs. The UCL report also found that the cost of living crisis was creating new mental health problems, with a drop in happiness and life satisfaction levels each month since the last summer. At the same time, depression and anxiety symptoms were the highest in nearly a year and on a level with when the first lockdown was eased in 2020.Cheryl Lloyd, education programme head at the Nuffield Foundation, said the results showed “that the cost of living increases are having a negative impact on people’s mental health, especially those living on low incomes”.This is despite people going out and about more. Nearly two in three people left home last month for entertainment purposes, an all-time high for the study. In fact, most people followed the new relaxed guidelines, the study found, but levels of confidence in the government to handle the pandemic well remained relatively low, at similar levels to when the first lockdown eased in 2020. More

Demand for neodymium and praseodymium (NdPr), among the most important minerals that Lynas mines, has soared in recent years as countries and companies pivot towards cleaner energy to tackle climate change.The minerals are used by automakers to make magnets for electric vehicles. Rare earths are also used in a wide range of goods including iPhones and laptops.”The market price for NdPr continued to strengthen during the March quarter and our customers continue to advise that demand for rare earths remains strong, particularly in automotive industry,” Chief Executive Officer Amanda Lacaze said in a statement.The world’s largest producer of rare earths outside China said revenue rose to A$327.7 million ($243.15 million) in the three months to March 31, from A$110 million a year earlier.The miner also posted a record NdPr production of 1,687 tonnes during the quarter, up from 1,359 tonnes from a year earlier.Lynas’ full product range garnered an average selling price of A$67.4 per kilogram (kg), up from A$35.5 per kg from the previous year. ($1 = 1.3477 Australian dollars) More

The IMF’s executive board approved creation of the new account on Friday after the Canadian government proposed disbursing up to $1 billion Canadian dollars through the vehicle, which is to be administered by the IMF.The account will allow donors to provide grants and loans to help the Ukrainian government meet its balance of payments and budgetary needs and help stabilize its economy as it continues to defend against Russia’s deadly invasion.Russia calls its actions a “special military operation.””Donors will benefit from the IMF’s tested infrastructure to quickly deliver authenticated payments,” the IMF said.Going through the global lender will allow donations to Ukraine to be frozen in the event of a Russian takeover of power in Ukraine, experts say.Donors will deposit reserve currencies or Special Drawing Rights, the IMF’s own reserve currency, into the new account, which will then disburse these resources as grants or loans into Ukraine’s SDR account at the fund.Ukrainian Finance Minister Serhiy Marchenko last week said his government was seeking about 4 billion euros ($4.37 billion) in foreign financing in addition to the about 3 billion euros it has already received to deal with a budget shortfall.IMF staff last month said Ukraine’s economy was expected to contract by 10% in 2022 as a result of the invasion, but warned the outlook could worsen sharply if the conflict drags on.One source familiar with the plans said additional donations were expected for both the IMF account and a separate World Bank account set up for Ukraine during next week’s spring meetings of the two global financial institutions.The IMF in March also approved a $1.4 billion disbursement to Ukraine under its Rapid Financing Instrument.IMF staff continue to engage closely with the authorities on their emergency response to the economic dislocations brought about by the war in Ukraine, the fund said. More

Ukraine’s finance minister has made an appeal for immediate financial support of tens of billions of dollars to plug a gaping fiscal deficit caused by the Russian invasion. Government spending exceeded revenues by about $2.7bn in March and Ukraine expects the gap to expand to $5bn-$7bn a month in April and May because of the war. Ukraine’s gross domestic product was worth $164bn in 2021. “We are under great stress, in the very worst [financial] condition,” Sergii Marchenko said in an interview with the Financial Times. “Now it is a question of the survival of our country.”Meanwhile, signs that Russia is nearing a significant new offensive in eastern Ukraine have mounted as US defence officials reported that troops withdrawn from Kyiv and the surrounding areas were being resupplied and reinforced by the Kremlin for redeployment in the Donbas region. Although Ukrainian officials have reported escalating Russian bombing in the region already — including last week’s strike on the railway station in Kramatorsk that killed more than 50 civilians — a senior Pentagon official said the US did not believe “a new offensive has started”. As civilians flee, Ukrainian and Russian forces are moving in the other direction as they converge on the Donbas for what threatens to be the bloodiest fight of a war that is now in its seventh week.More from Ukraine: Energy: US president Joe Biden discussed India’s energy purchases from Russia with India prime minister Narendra Modi as Washington pressed New Delhi to take a tougher stance on Russia over the war in Ukraine.Austria: Chancellor Karl Nehammer said he had “no positive impression” of his talks with Russia president Vladimir Putin, after a last-ditch trip to Moscow yesterday to try to broker an end to the country’s invasion of Ukraine.Banking: Société Générale will take a €3.1bn hit after agreeing to exit Russia by selling Rosbank to an investment company founded by billionaire Vladimir Potanin.Saving Kyiv: Ukrainian forces won the battle for the country’s capital with the help of low-tech equipment such as gym mats that blocked thermal imaging, and Russian mistakes including failing to knock out Kyiv’s air defences.The making of an autocrat: On a visit to New York in 2003, Vladimir Putin pitched himself to investors as an economic reformer willing to engage western capitalists. But power and success changed him, writes Ruchir Sharma.Thanks for reading FirstFT Asia. Have feedback on today’s newsletter? Send it to [email protected] — Emily. Five more stories in the news1. Shanghai unveils limited easing of Covid lockdown The city yesterday unveiled plans for a limited easing of its strict coronavirus lockdown, as economic and social pressures mounted. The Chinese financial and industrial centre will divide compounds into three risk categories, with several thousand to have their lockdowns lifted if they report no cases for a two-week period.2. Elon Musk reverses decision on Twitter board Tesla boss Elon Musk will not join Twitter’s board of directors, reversing course just days after he became its biggest shareholder and was offered the seat. Parag Agrawal, the social media company’s chief executive, tweeted that Musk, who was due to be officially appointed to the board on Saturday, would no longer do so. Agrawal did not give any more details. 3. Pakistan’s parliament appoint new PM Pakistani lawmakers have voted to install opposition leader Shehbaz Sharif as prime minister, less than 48 hours after Imran Khan lost the premiership in a vote of no confidence early on Sunday. Go deeper: Sharif’s win marks the return to power and influence of the nation’s two main political dynasties.4. China approves new online games for first time in nearly a year Chinese regulators have approved new online games for the first time in nine months, in the first signs the government was easing its crackdown on the previously buoyant sector.5. Macron and Le Pen begin final sprint in French run-off Emmanuel Macron has started a frantic hunt for working-class votes in an attempt to ensure victory over far-right rival Marine Le Pen in the second and final round of the country’s presidential election on April 24.Opinion: We need to think about a Le Pen presidency, writes Gideon Rachman. France’s far-right candidate could still defeat Macron, plunging Nato and the EU into turmoil.The day aheadIndia economic data February industrial production figures are due, as well as March’s consumer price index data.Cosmonautics Day Today marks 61 years since Yuri Gagarin conducted the first human space flight on April 12, 1961.EU Equal Pay Day Today marks the day of the year up to which women need to work in order to earn the same salary as men during a full year of workWhat else we’re reading and listening to The Chinese companies trying to buy strategic islands Small businesses from China have scoured the globe for important strips of land. In dozens of cases examined by the Financial Times, mostly little-known Chinese investors have proposed taking long leases or have tried to buy large chunks of land, often in sensitive locations.

A dock in Honiara, the capital of the Solomon Islands. China Sam Enterprise Group proposed a 75-year lease of Tulagi Island and, later, a 75-year lease of land in Isabel for ‘naval and infrastructure’ projects for the People’s Liberation Army © Getty Images

Tech Tonic: Chips with everything In this week’s episode of podcast we have a detailed look into the semiconductor industry and Taiwan’s unique position as a bastion of computer-chip talent. James Kynge, the FT’s global China editor, looks into the unintended consequences of the race for semiconductor dominance. FT interview with Seoul’s mayor Oh Se-hoon, the mayor of Seoul, has admitted that South Korea’s reputation for opaque and heavy-handed regulation has hampered the city’s ability to lure business and investors quitting Hong Kong. Read the full interview here. Sibling rivalries, spousal squabbles — it’s great to be back in the office You can pick your friends but not your family, goes the saying. So too with work. Unless you own the company, you rarely get to choose your colleagues, writes Emma Jacobs.India just signed a trade deal — really India has signed a trade deal. This is not a drill. Repeat: India has signed a trade deal, writes Alan Beattie in his Trade Secrets newsletter This is not a drill. OK, so the deal, with Australia, is only an interim agreement, but the signed preferential deal, with a developed economy, is the first of its kind for India in more than a decade.Your feedbackThanks to readers who responded with their thoughts about John Lee entering the race to succeed Carrie Lam as Hong Kong’s next chief executive. Here’s what two FirstFT Asia readers in Hong Kong had to say. (Both preferred to remain anonymous for safety reasons.) “The celebration of getting rid of Carrie Lam was very short lived when people saw who the replacement will be. It’s also worth noting that almost everyone I have spoken to in the international community are saying this will be an accelerator for them leaving Hong Kong.” “As a long time resident of Hong Kong, I am hardly surprised by this development. It is part of the Chinese Communist party’s ‘long game’ takeover of Hong Kong. The Party allowed the incompetent Carrie Lam to remain in charge and reduce one of the world’s great cities to a laughing stock.” More